A raft of natural disasters failed to crimp QBE Insurance Group’s first half profit, but a big contraction in insurance margins caused its shares to plunge.
The Sydney-based global insurer booked a 53 per cent jump in first half net profit to $US673 million ($A649.7 million) for the six months to June 30. Gross written premium, the standard measure of policy sales in the insurance industry, increased 30 per cent to $8.94 billion.
Storms in Queensland and Victoria, 12 US tornadoes and Christchurch’s fourth major earthquake in a year failed to dent the insurer’s overall profit result. QBE also expects premium rate increases of about four per cent for the full year.
Investment income on shareholders funds was $US186 million, compared with the negative $US169 million a year earlier, which helped the first half profit to increase rather than decline.
The results were “absolutely stunning given the level of catastrophes that the world has experienced in the last six months,” chief executive Frank O’Halloran said.
But investors dumped QBE’s stock after learning its insurance profit fell eight per cent to $US762 million, and the margin was cut 4.6 per cent to 11.2 per cent on the record levels of large individual risk and catastrophe claims.
Individual catastrophe claims are bigger than $US2.5 million, and together with large risk claims, stripped 6.6 per cent off the company’s insurance profit margin.
QBE shares plunged by as much as 11 per cent on Friday before closing down 77 cents, or 5.6 per cent, to $12.98.
“There was always going to be a slight over-reaction until people absorb the fact that our underlying business is very strong,” Mr O’Halloran said.
QBE is expecting its full year 2011 insurance margin to be between 11 and 14 per cent, and its underlying insurance margin to stay at 16 per cent, but this guidance will still disappoint the market, says Morningstar’s Peter Warnes.
It also lowered its forecast net yield on investment income from 3.5 per cent to 2.7 per cent for the second half, but assured the market it would not suffer from Friday’s market rout now that equities comprise just 0.4 per cent of its portfolio.
The insurer’s interim underlying profit plunged 46 per cent to $US291 on a year earlier, and would have been $US217 million lower had it not been for its reinsurance protection contracts renegotiated last year.
Reinsurance companies insure insurance companies against losses.
Natural disasters caused the world’s five biggest, including Munich Re, Swiss Re, and Warren Buffett’s Berkshire Hathaway, to be “absolutely hammered in the first half of this year”, Mr O’Halloran said.
Now they are imposing changes to reinsurance contracts to restore their own profits, but increases to premiums imposed by QBE on policyholders will offset price increases from reinsurers, he said.
“We have comprehensive reinsurance protections in place for a continuation of the catastrophes that we experienced in the last half.”
Interest in acquisitions will be limited to bolt-ons in the second half, he added.
QBE declared an interim dividend of 62 cents per share, unchanged on a year earlier.
