The Global Insurance Major, QBE Insurance Group Limited (ASX: QBE ) Returned To The Black In 2018

QBE today released its 2018 results, and the company reported a Net Profit After Tax of $390M compared to a loss of $1,249M in the previous year. QBE group CEO, Pat Regan, attributed the groups improved results to the company’s marked improvement in attritional claims witnessed across all divisions and supported by a reduced level of catastrophe claims. The CEO also added that the numbers were damped partly by a lower net investment yield due to market volatility in the final quarter.

The Key results highlights:

• Cash profit after tax up to $715M vs. loss of $262M in FY2017
• Cash profit ROE of 8.0% vs. -1.4% in FY2017
• The average group-wide premium rate at 5% vs. 1.8% in FY2017
• Gross written premium at $13,657M vs. $13,328M in FY2017, a net improvement of 3%
• Adjusted combined operating ratio improved to 95.7% vs. 103.9% in FY2017
• Attritional claims ratio at 50.2% vs. 53.1% in 2017, driven by significant improvement across all divisions
• A stable Adjusted commission and expense ratio at 31.6% vs. 31.8% in FY2017
• Debt to equity ratio reduced to 38.0% vs.40.8% in FY2017
• Final dividend of AUD28cps, franked at 60%. FY18 dividend of AUD50cps vs. AUD26cps in FY2017
• Total shareholder pay-out doubled to A$1,002M vs. A$495M in FY2017

Management commentary on operational performance:

The CEO highlighted that the groups initiative like the implementation of rigorous performance framework and upgradation of core capabilities in pricing, risk selection, and claims management resulted in marked improvement in the underlying quality of the business and the financial performance in 2018.

The combined operating ratio came in at 95.7% showing a meaningful improvement from 103.9% in FY 2017, and this number came in line with the target range of 96.0%-97.0% set by the management for FY 2018. The uplift in underwriting profitability was underpinned by an improvement in attritional claims ratio to 50.2% from 53.1% in FY2017, also aided by a significant reduction in cost of catastrophe claims post an extreme 2017.

The company’s reported region wise performance is as follows:

Australia and New Zealand: Result quality Improving

GWP of $3,992M an increase of 2% from FY2017

COR at 91.9% vs. 92.0% in FY2017

Attritional at 57.7% vs.60.6% inFY2017

Europe; Continuing targeted improvement

GWP $4,335M an increase of 6% from 2017

COR at 94.8% vs.95.2% in FY2017

Attritional at 46.8% vs.49.6% in FY2017

North America: Improving performance

GWP $4,711M an increase of 3% from 2017

COR at 97.9% vs.109.1% in FY2017

Attritional at 50.4% vs.53.2% in FY2017

And finally, Asia Pacific: remediation efforts paying off

GWP $633M an increase of 15% from 2017

COR at 104.2% vs.115.5% in FY2017

Attritional at 51.0% vs.56.0% in FY2017

The groups indicative APRA (Australian Prudential Regulation Authority) PCA (Prescribed Capital Amount) multiple was 1.78 x at 31^st December 2018, as compared to 1.64x at 31^st December 2017 and this came at the upper end of the group’s 1.6x-18x target PCA range. This led to an improvement in balance sheet post an extreme catastrophe experience of 2017.

The groups total shareholder returns in 2018 was just over A$1 b aided by A$333M share buyback and a full year dividend of AUD50cps.

Outlook for 2019:

The management targets a combined operating ratio of 94.5% -96.5% for 2019 and Net investment return of 3.0% - 3.5% for the year 2019.

Stock Information:

QBE Insurance Group Limited (ASX: QBE ) market capitalization stands at $15.2 billion. The Stock price was noted as A$11.870 (as at Mon 25 Feb 19 02:31 PM) with the 52-week low price of A$ 9.280 and the 52-week high price of A$12.110.

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