Shares in global insurer QBE have fallen sharply after the company downgraded its earnings expectations in the wake of superstorm Sandy in the United States.
QBE said on Monday that its losses from the disaster could range from $US350 million to $US450 million ($A338.21 million to $A434.85 million).
QBE shares were down 89 cents, or 6.92 per cent, at $11.98 at 1356 AEDT on Monday.
They have fallen from $13.19 since the storm hit the US east coast on October 29.
QBE on Monday cut its insurance profit margin guidance, a key indicator of profitability, largely as a result of its share of Sandy’s estimated $US20 billion ($A19.33 billion) insurance cost.
QBE cut its forecast insurance profit margin for 2012 from better than 12 per cent to about eight per cent.
QBE had already cut the forecast insurance profit margin in August, from more than 13 per cent, to more than 12 per cent.
“I would like to apologise to our many shareholders for this profit warning and for the decision to again lower our insurance profit margin forecast for 2012, QBE chief executive John Neal said in a market briefing on Monday.
Mr Neal said superstorm Sandy was shaping up to be one of the most costly storms or hurricanes in US history.
“It is still very early to be assessing the full impact of Sandy, and the insurance market is probably weeks, if not months away, from accurately estimating the final insured cost of this catastrophic and complex loss event,” he said.
Mr Neal said he expected that losses from superstorm Sandy were likely to be north of $US20 billion.
“I genuinely would not be surprised to see the loss go much higher than that figure. The damage is very substantial,” he said.
Mr Neal expected that insurance premiums around the world would rise in the wake of superstorm Sandy.
“In my experience, it’s only a major loss in the US that step-changes pricing globally,” he said.
“I do think this is a major loss, and I do think it will sustain the rate increases that we’re seeing, and certainly for the property classes, and most specifically, property in the US.
“You will see prices move forward. We, along with other local players, are already moving our rates forward.”
Despite the profit warning, QBE still expects its net profit for calendar 2012 will be higher than in 2011.
QBE now expects to report a net profit after tax and before amortisation in excess of $US1 billion ($A966.32 million) for the year to December 31, an increase of around 30 per cent from 2011.
The company’s previous insurance profit forecast included an allowance for large individual risk and catastrophe claims of 10.5 per cent of net earned premium for the full year.
It is now expected that large individual risk and catastrophe claims will cost up to 12 per cent of net earned premium.
Also on Monday, QBE’s board approved the issue of $US500 million ($A483.16 million) of subordinated convertible debt securities to boost its capital position.
Proceeds from the issue will be used to repay short-term borrowings and to increase the capital of QBE’s US subsidiaries.
