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QBE warns of a $100m catastrophe allowance blowout

Mon 21 Nov 22, 10:23am (AEST)
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Key Points

  • QBE now assumes FY22 catastrophe costs to come in $100m above its full-year allowance
  • Gross written premium growth remains sound, up 12% in the year-to-September
  • Investment performance remains leveraged to the rising interest rate environment

QBE Insurance (ASX: QBE) warns that FY22 catastrophe costs could overrun its budget by approximately $100m, clouding the otherwise positive outlook for the insurer. The company's stock fell -1.1% as the market opened.

"Challenging operating conditions have persisted into the second half, and while performance remains resilient across many facets of our business, higher than expected catastrophe costs have introduced some risk to our original full year outlook," the company said in a statement.

The insurer is now expecting FY22 net catastrophe costs of $1.06bn, roughly $100m higher than its full-year catastrophe allowance of $962m.

Still-solid growth

For the year-to-September, Group gross written premiums rose 12% on the prior period or up 16% on constant currency.

On the pricing front, QBE said it continues to achieve 'rate increases at or above inflation in most classes.'

On the investment front, QBE remains leveraged to rising interest rates, with its September quarter exit fixed income running yield rising to 3.7% from 2.5% in the first-half of 2022.

Risks to outlook

QBE reaffirmed its FY22 guidance of 10% growth in gross written premium and expects the supportive premium rate environment to continue in the short-to-medium term.

The Group guided to a combined operating ratio of approximately 94%. The combined operating ratio (COR) measures the amount of money flowing out of an insurance company in the form of dividends, expenses and losses.

Of note, the COR outlook excludes the impact of the Australian pricing promise review. QBE is currently working to remediate customers where policy pricing promises were not delivered. Approximately $75m has been recorded for expected costs.

Adjusted COR was 92.9% in the first-half of FY22, which consistent with the company's target of 'low to mid 90s COR through-cycle'.

QBE Insurance Group Ltd (ASX QBE) Share Price - Market Index
QBE Insurance share price chart


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Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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