NZ branch performs strongly amid multi-million dollar losses for Aussie insurer

by IBO 26 Feb 2014

NZ branch performs strongly amid multi-million dollar losses for Aussie insurer

QBE group is confident its Kiwi branch will deliver GWP of US$300m in 2014 and build further on its already strong position.

The forecast was revealed in yesterday’s ‘disappointing’ full year results for 2013 which saw the company reporting a $280 million net loss and a 33% dive insurance profits to $930m.

However, Colin Fagen, Chief Executive Officer, Australian & New Zealand Operations, QBE Insurance Group, told Insurance Business: "New Zealand has performed very well for the past couple of years and is in a strong position to achieve further growth. We have every confidence in the New Zealand team delivering GWP of US$300 million in the year ahead.”

Regarding the Australian and New Zealand operations Fagen said an excellent result was achieved with a combined operating ratio of 87.4%, combined with 4% GWP growth in local currency.

Robust underwriting controls combined with ongoing change initiatives, enhanced expense management and transition to their Group Shared Services Centre in Manila underpinned their success this year.

“Our team has a great understanding of the New Zealand market and fantastic relationships with our intermediary partners," said Fagen.

“The progression of Australia’s transformation program will assist New Zealand to achieve future growth, scalability and investment, which will enable our New Zealand team to assist all of our partners in this increasingly competitive market. 

“Our New Zealand team is able to leverage the scale of our division and global business to support our partners and improve our service." 

The group’s overall net loss, in line with guidance it gave in December, was due to large one off costs primarily associated with QBE’s North American operations relating to prior year claims, write-off of goodwill and intangibles, and restructuring costs.

Cash profit was $841m, compared to $1.2bn the prior year, differing from its December announcement due to the “foreshadowed one-off FPS restricting costs being deemed ‘cash’ rather than ‘non-cash’ items”.

Net earned premium income was down 3% to $17bn, net investment income was down 34% to $885m, and the insurance profit margin was 5.5% compared to 8% in 2012.

The combined operating ratio stayed stable at 97.8% (2012: 97.1%) but this “fell short” of QBE’s original 92% combined operating ratio guidance, mainly due to adverse prior accident year claims development in its North American operations, which reported a US$482m underwriting loss.

QBE Group CEO John Neal admitted “disappointment” with the underwriting result.

“Although we are disappointed with our 2013 underwriting result, we have taken the necessary steps to deal with underperforming portfolios, completed an extensive program of management change and succession across the Group and are well on the way to implementing transformation programs, all of which will provide a solid base for our business in 2014.”

Gross written premium remained stable, $20.3bn(2012:$19.9bn), but this was “well below budget, largely due to a $790m year-on-year reduction in North American gross written premium, with growth in other divisions partially offset by translation to the stronger US dollar. Premium rate increases on renewed business average 4% overall, reflecting relatively strong rate increases in Australia and North America. Pricing in Europe remains challenged where strong competition and surplus capital is precluding any substantive rate increases.

Net claims ratio improved to 64.5% compared to 66% last year; attritional claims ratio deteriorated slightly to 49.6% compared to 49.4% in 2012; and the combined commission and expense ratio increased to 33.3% compared with 31.1% the prior year, due to changes in product mix, the impact of lower premium volumes, investment in the operational transformation program, and one-off FPS restructuring and other costs.

Significant strengthening of the provision for outstanding claims central estimate and risk margins, with probability of adequacy increased 90.7%.

Local currency premium growth in Australia and New Zealand was up 4% to $5bn and the local combined operating ratio was in the 80s.

However, addressing the results as a whole, Neal said: “These results were foreshadowed in our announcement to the market in December. We have introduced changes to key management and have taken significant steps to reposition and right- size underperforming businesses in North America and are making excellent progress with our global transformation program.

“Key leading indicators in 2013, including an underlying insurance profit margin in excess of 10% and a current accident year central estimate combined operating ratio of 92.5%, enable us to target a markedly improved performance in 2014.”

QBE is targeting a 2014 combined operating ratio of 93% and based on this, an underlying insurance profit margin of around 10%.

Neal said the company expects premium rates to fall overall to 2.5% on average in 2014, with rate increases to counter claims inflation in Australia, New Zealand and North America, however pricing is expected to remain broadly flat in Europe.
 

* All amounts are in Australian dollars unless otherwise stated.