QBE to Face P&L Headwind Of Around $50 Mn-$100 Mn

  • Dec 11, 2018 AEDT
  • Team Kalkine
QBE to Face P&L Headwind Of Around $50 Mn-$100 Mn

Leading Insurance and Reinsurance company QBE Insurance Group Limited’s (ASX: QBE) shares went down by 4.09 percent today (i.e., 11 December 2018) after the release of its market update in which the company informed about its 2019 reinsurance program and provided an update on its portfolio simplification.

In the market release, the company informed about the sale of its insurance operations in Puerto Rico, Indonesia, and the Philippines. Further, the company also announced a three-year operational efficiency program which will target net cost savings of $130 Million and an expense ratio of around 14 percent in 2021.

The company has recently finalized its 2019 reinsurance program which is focused on simplifying the group’s portfolio and improve the underwriting risk profile.

As per the market release, the 2019 reinsurance program is going to reduce the catastrophe retention, and it will increase the protection against catastrophe severity. Further, the program will also protect against the frequency of medium-sized catastrophes, and it will also reduce substantial individual risk claim retention.

It is expected that the 2019 reinsurance program will save around $125 million in reinsurance costs. However, the cost savings from the 2019 program is going to get offset due to the increase in the budgeted allowance for large individual risk and catastrophe claims to around $1.4 billion. Further, the company is also expecting a P&L headwind of around $50 Mn-$100 Mn in FY19.

QBE has recently announced the consolidation of its regional footprint into its North America, International Markets and Australia Pacific regions. Further, the company’s Brilliant Basics program is expected to reduce more claims costs due to the improvement in the pricing adequacy, risk selection and effectiveness in the claims management.

In the recently announced three-year operational efficiency program, the company is planning to make its operations more effective and streamlined. Also through this program, the company is trying to consolidate technology tools, reduce IT run costs and re-engineer and automate its processes.

From 2019-2021, the operational efficiency program is expected to deliver cost saving of around $200 million, and it is expected to reduce expenses by $130 million by the year 2021. Further, the company is targeting an expense ratio of around 14 percent by 2021 which represent an improvement of around 1.5 percent, inclusive of very modest and selective premium growth. The company is also expecting restructuring costs of $95 million which will be incurred over 2019-2020

As part of the company’s operational efficiency program, the company is investing in its people and trying to operate more efficiently. Also, the company is investing in several technology initiatives which include the consolidation of underwriting platforms in North America and a more advanced workflow tool for the company’s European underwriters.

In the last six months, the share price of the company increased by 11.24% as on 10 December 2018. QBE’s shares traded at $9.965 with a market capitalization of $13.8 billion as on 11 December 2018 (AEST 1:09 PM).


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