Early Friday morning, financial services group QBE Insurance [ASX:QBE] took a 7% hit in the share market mere hours after releasing its 1Q performance update.
The group did say it will be distributing 30 cents per share as a final dividend, substantially higher than the 19 cents declared in 2021, but shareholders were overall not pleased with the report.
QBE also reported it had spent the majority of its 1H FY23 budget on catastrophe payouts in the first quarter.
QBE was trading for $14.09 cents a share at the time of writing. Even though it’s fallen by 6% in the month, the group has been trading strongly at a near 15% rise in the past 12 months, performing well in both its sector and the wider market:
Source: TradingView
QBE presents 1Q performance results
QBE reported that growth in gross written premiums were up by 11% on the prior corresponding period —14% in constant currency.
Renewal rates for the growth overall had increased an average of 10%, which the company said was supported by a boost in property classes and higher rate increases.
QBE said ex-rate growth was 9%, or 5% excluding crop — a result described as having ‘exceeded expectations’ even with some negative impacts of ending programs in North America, —and a reduction in growth across certain financial lines segments.
Organic growth in crop continued, and QBE currently estimates that crop gross written premium will be $4.0 billion in FY23, with a net earned premium of $1.4 billion.
Having said that, the group also listed its catastrophe activity —which had remained elevated so far in 2023.
This was underscored by Cyclone Gabrielle and the North Island flooding events in NZ, as well as a series of storms in the US and Australia.
As a result, the net cost of catastrophe claims is accrued at $480 million, which compares to QBE’s catastrophe allowance for 1H23 of $535 million. This is a solid chunk, and now the group only has $55 million left for the next quarter.
QBE also said its total investment funds under management (FUM) totalled $29.1 billion, up from $28.2 billion in FY22.
Core fixed income remains at 89% of total investments, and the group said it will be distributing 30 cents per share in dividends, up from 19 cents in 2021.
Source: QBE
QBE’s 2023 outlook
Shares in QBE had dropped significantly after investors digested the full extent of the damage from US storms, as well as NZ and Australian flooding. These had dispensed the company with $480 million for one quarter alone, not leaving much left for the remainder of the half.
This also equates to an additional $190 million hit on the group’s profit, striking out a considerable amount on its capital so early in the year.
In February, shareholders were displeased by the relation rate hikes in the US as they had not delivered as much of a profit to the group as perhaps initially anticipated.
On top of that, QBE expects 2Q23 FUM to be negatively impacted by $1.9 billion from a reserve transaction announced in February.
Nevertheless, the company said in its outlook that expects premium rate increases to be supportive, and by extension, FY23 group constant currency GWP growth of 10% (from mid-to-high single digits previously) is now expected.
QBE has revised its operating ratio to 94.5% in light of the recent catastrophe payments.
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Regards,
Mahlia Stewart,
For Money Morning
