QBE Returns to Profit During 2014 as North American Unit Improves

By | February 24, 2015

QBE Insurance Group Ltd., Australia’s second-largest insurer by market value, climbed the most in four years in Sydney stock trading as an improving North American business and lower provisions helped it return to profit.

Net income in the year ended Dec. 31 was $742 million, compared with a loss of $254 million a year earlier, the Sydney-based company said in a filing on Tuesday. Insurance profit, which is the sum of underwriting earnings and investment income, climbed 28 percent to $1.07 billion. [All figures are in US dollars unless otherwise stated.]

Chief Executive Officer John Neal has embarked on a turnaround strategy for the insurer, which has struggled with write-downs in North America and higher claims in Latin America. He sold shares and some businesses last year to shore up capital after QBE reported in 2013 its first annual loss in 12 years. The company boosted its final dividend and said it will target “strong growth” in payouts.

QBE Insurance CEO John Neal

QBE Insurance CEO John Neal (Photographer: Ian Waldie/Bloomberg)

“When you strip out the one-off items, the underlying profits underscore QBE’s turnaround story,” T.S. Lim, a Sydney-based analyst at Bell Potter Securities Ltd., said by phone. “QBE is still flogging off underperforming assets in a bid to lift returns. The target to increase dividends is drawing investors seeking yields.”

Shares of the insurer jumped 7.2 percent, the most since February 2011, to A$12.45 as of the close in Sydney on Tuesday. The stock gained 11 percent this year.

Lower Premiums

The stock climbed even after net income missed the $826.2 million mean estimate of 11 analysts surveyed by Bloomberg and the company signaled a drop in premiums this year.

QBE’s 2014 insurance profit margin was 7.6 percent, compared with its own expectations in August for a spread of 8 percent to 9 percent. Gross written premiums of $16.3 billion for 2014 missed its guidance of $16.6 billion to $17 billion. It expects premiums this year of $15.5 billion to $15.9 billion.

“The turnaround story is overshadowing the forecast miss,” Evan Lucas, a market strategist at IG Ltd. in Melbourne, said by phone. “The expectation is QBE’s 2015 guidance is conservative.”

The insurer announced a final dividend of 22 Australian cents, up from 12 cents in 2013.

Net claims expenses fell to $8.9 billion from $9.9 billion a year earlier, while underwriting and other expenses dropped 10.6 percent, it said. The company’s North American business posted an insurance profit before income tax of $8 million, compared with a $535 million loss a year earlier.

Asset Sales

Neal has added more than $1.5 billion in capital in the last 12 months and sold businesses to shore up capital. Cost cuts have delivered $250 million in savings, QBE said. Amortization and impairments dropped to $117 million in 2014 from $1.24 billion a year earlier.

In January, the company agreed to sell its U.S. agency division to Alliant Insurance Services Inc. for about $300 million. QBE said this month it will divest a similar business in Australia for A$290 million in cash, with further payment based on the unit’s performance. The insurer has agreed to sell its Argentine worker’s compensation unit for $95 million, QBE said Tuesday.

The sale of the Argentine business provides “comfort” on the company’s reserves, Andrew Adams, a Sydney-based analyst at Credit Suisse Group AG, wrote in an investor note.

–With assistance from Darren Boey in Hong Kong.

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