QBE Insurance Group expects to report a first-half, after-tax loss of around $750 million, mainly due to COVID-19 claims and natural catastrophes, which included Australia’s bushfires and hailstorms at the beginning of the year.
During the first half, QBE said it is likely to report a combined operating ratio of around 104%, which reflects COVID-19 impacts of around $335 million, adverse catastrophe experience of around $60 million and adverse prior accident year claims development of $120 million. The company also expects a net investment loss around $125 million, as a result of extreme investment market volatility.
Excluding COVID-19 impacts, the H1 combined operating ratio is expected to be around 98%.
While QBE has separately identified obvious COVID-19 revenue and expense impacts, there will be other less significant impacts, both positive and negative, that are not readily identifiable or quantifiable.
Ahead of QBE’s interim results, scheduled for Aug. 13, QBE provided an update on the expected H1 financial result, including the current and prospective impact of the COVID-19 pandemic.
In the update, QBE noted that premium pricing continues to harden. Renewal rate increases averaged approximately 8.7% during the half, compared with 4.7% in the first half of 2019. Premium rate momentum in North America and International accelerated, reporting increases of 10.4% and 14.2%, respectively, during Q2. These rating trends contributed to an average Q2 group-wide renewal rate increase of approximately 10.1%, following an increase of 7.3% in Q1.
On a constant currency basis and adjusting for asset sales completed in 2019, gross written premium grew by around 10% during the half.
QBE said the pandemic has, or is expected to, adversely affect multiple lines of business, including property (business interruption), reinsurance, workers’ compensation, casualty (including D&O), accident & health (A&H), trade credit, lenders’ mortgage insurance (LMI) and landlords’ insurance. As a result of reduced personal motor claims frequency, premium refunds were returned to customers.
While the landscape remains highly uncertain, at this stage QBE currently estimates total COVID-19 related costs to be around $600 million pre-tax, which includes approximately $265 million of potential further net claims that could emerge over the next 12-18 months, primarily in trade credit and LMI, but also in casualty (including D&O), A&H, landlords’ insurance and other classes.
“Despite the impact of COVID-19, I am encouraged by the strong underlying trends evident in the result. Notwithstanding significant uncertainty surrounding the enduring impact of the COVID-19 pandemic, our greatly strengthened capital base positions us well to capitalise on accelerating pricing momentum and emerging organic growth opportunities,” said QBE Group CEO Pat Regan.
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