Why QBE’s chief executive calls half year “disappointing” despite profit surge

“It was a disappointing half for me in many respects, but I think we are making progress on our key initiatives and have good momentum in the business.”

Those were the words of Andrew Horton (pictured), group chief executive of QBE Insurance Group, during the company’s earnings call on Thursday before it was announced that the insurer saw a significant increase in its net profit after income tax – from $48 million in the first half of 2022 to $400 million this time.

Trouble in North America

“Underwriting performance was impacted by catastrophe costs, both in the current year and last year, resulting in a combined operating ratio (COR) of 98.8%, or 97.6% excluding the initial reserve cost of transaction we announced in February,” said the CEO. during the results webcast.

“Although we were able to better absorb some of the setbacks and still maintain double-digit returns on equity, I was disappointed by the magnitude of the volatility in this half of our North American results. The improvement in returns in North America remains our highest priority.”

In terms of underwriting profitability, only North America posted a COR above 100% in the first quarter. Australia Pacific, which has barely made it, was hit by weather events in New Zealand earlier this year.

Echoing Horton’s sentiment, QBE group chief financial officer Inder Singh said: “It was a challenging half for underwriting performance. The impact of catastrophes was huge, and the return to North America unacceptable.”

In his one-on-one with Insurance Business following the results webcast, Horton cited the above as one of the “elements of disappointment” that marred an extraordinary set of financial results.

“We have been focusing on North America for many years now, and it should be better than that,” the CEO said while at the same time highlighting “many, many positive things” such as the group’s capital. strength and tenacity in management.

The plan for North America, in terms of core lines, is to have a good balance between crop, specialty, and commercial.

Horton said Insurance Business: “Then how do we make sure they all deliver this low to mid-90s combination ratio? So, there’s a lot of work to be done in the US. But the US – it’s a much more straightforward business than it used to be. It’s not a lot of business lines, so we don’t have a lot of areas to focus on to improve it.”

Source of profit

During the first half, QBE’s total investment income amounted to $662 million – a huge jump from last year’s $20 million loss. This positive result was the main driver behind the insurer’s largely improved net profit after income tax, rather than what QBE earned from underwriting.

As emphasized during the company’s presentation, QBE generated more investment income in the first half than it did in the course of 2022. Horton, however, wants to underwrite to contribute more to the bottom line.

“It’s all driven by our investment income being higher, and that’s likely to continue for the rest of the year,” Horton said when he sat down with Insurance business. “So, we will probably get the same number in the second half of the year.

“In general, the company’s income is good and the return on capital is good. But we are an underwriting company and, therefore, we have to provide a good underwriting income.”

With a new group chief underwriting officer set to take office in September, the group CEO is keen to advance QBE’s portfolio optimization, which is one of the insurer’s strategic priorities.

Referring to Peter Burton, who continues his role in the international market, Horton said: “So, let’s look at our underwriting. Are we consistent in what we do? And then the second is this issue of aggregation – do we have aggregations that we haven’t thought of yet? Then he is also responsible for buying the reinsurance. So, these are all related things.

“We will get our consistency in underwriting and underwriting appetite. Let’s make sure we understand aggregations. That will link to our reinsurance, and ultimately link to an improved combined ratio. So, these are the conversations that Peter and I have had and will continue to have.”

According to Horton, efforts to better manage volatility continue at QBE, with property catastrophe risk remaining a major focus.

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