QBE’s 2016 interim profit was $265 million, down 46% from $488 million in the same period last year, reflecting an adverse discount rate adjustment of $283 million compared with a benefit of $45 million in the prior period. The combined ratio increased to 99.0% from 95.3% in the prior period, again due to the decline in risk-free rates. The shares were marked down after the results.
Revenue was flat at $7.89 billion, up just 1%, as insurances prices came under pressure. QBE has a $150 million cost-cutting target for the second half of the year (equating to a 1% improvement in the expense ratio).
They are impacted by the fall in global risk-free rates – to the point that around 77% of global sovereign bond yields are now below 1% while around 40% are negative.
Excluding the impact of discount rate movements, the interim result was underpinned by a combined operating ratio of 94.0%, in line with FY16 guidance of 94%–95%, albeit with a greater contribution from positive prior accident year claims development than originally envisaged.
The Australian & New Zealand Operations, was supported by strong returns in long tail portfolios and lenders’ mortgage insurance (LMI) business. However, the result included a significant deterioration in the attritional claims ratio as a result of increased NSW CTP claims frequency, coupled with premium pricing pressure, higher than normal claims inflation and increased claims frequency in short tail portfolios.
They say that a swift and decisive response is required and will encompass a combination of price increases, tightened terms and conditions and improved risk selection. They anticipate that the actions taken will benefit attritional claims ratio in 2017.
