QBE Shares Drop Most in 12 Years on Unexpected U.S. Loss Forecast

By | December 9, 2013

QBE Insurance Group Ltd., Australia’s second-largest insurer by market value, plunged the most in 12 years after forecasting an unexpected loss due to write-downs at its North American operations.

The company predicts a $250 million loss for the year to Dec. 31. That compares with a mean estimate of a $1.07 billion profit for this year from 11 analysts surveyed by Bloomberg, and a $761 million profit recorded for the previous 12 month period. The shares fell 22 percent in Sydney, the biggest daily drop since September 2001.

The guidance reflects Sydney-based QBE’s continued struggle in North America, where gross written premiums dropped 16 percent in the six months to June 30. The region provided 29 percent of those premiums in the period. QBE said provisions for unresolved claims in the second half were $470 million, with about $300 million of that coming from North America.

“The surprise was the extent of the loss,” Brett Le Mesurier, Sydney-based analyst at BBY Ltd. said by phone. “While this could be the peak, I don’t think this is the end of QBE’s problems in North America. There should be some residual trouble left.” He has an underperform rating on the stock.

QBE fell A$3.45 to A$12 in Sydney trading, its lowest level since Feb. 1, trimming the gains for the year to 10 percent. The benchmark S&P/ASX 200 index dropped 0.8 percent.

Impairment Charges
The insurer took a goodwill impairment charge of about $600 million, primarily in North America, as well as a one-time impairment charge of $150 million following a review of the region’s business. The company in February wrote off $407 million in amortization and impairments largely from its U.S. operations, pushing it to miss profit forecasts for 2012, filings show.

“We are emphatically dealing with the North American issues that have been detrimental to confidence and underwriting performance over recent reporting periods,” CEO John Neal said in today’s statement. “As painful as these decisions are, we are confident that our business in North America will trade profitably in 2014.”

QBE expects its gross written premium to be $17.8 billion for the year. While the final dividend won’t be determined until the full-year results are finalized, it was the board’s policy to pay out 50 percent of cash profit as dividend, the company said. It forecast a full-year cash profit of about $850 million.

The insurer expects its 2014 gross written premium to fall 5 percent due to a stronger U.S. dollar and lower U.S. crop prices. QBE is targeting an insurance profit margin of about 10 percent in 2014, it said.

While capital levels were above the regulatory benchmark, the insurer plans to raise $500 million in subordinated convertible notes to repay maturing debt, the company said.

Chairman of three years Belinda Hutchinson will retire from the board in March 2014 and will be replaced by Marty Becker. Becker was most recently CEO of Alterra Capital Holdings and joined QBE’s board in August.

–Editors: Chris Bourke, Tomoko Yamazaki

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