Claims in emerging markets drag QBE down

QBE shares have plunged after the insurance heavyweight warned costs were rising amid higher-thanexpected claims from its emerging markets division.

The group says it now expects its combined operating ratio – a pivotal measure of expenses for insurers – to clock in between 94.5 per cent and 96 per cent this year.

That marks a deterioration from the past two years: the ratio was 94.3 per cent in 2015 and 93.2 per cent last year.

A lower ratio means the company is more profitable.

QBE, led by chief executive John Neal, had flagged a target of between 93.5 per cent and 95 per cent this year at its annual meeting just a month ago.

Increased frequency of medium-sized risk claims in Asia, along with weather-related claims and the impact of legacy portfolios in Latin America were behind the downgrade, the group said.

Martin Crabb, the chief investment officer at stockbroker Shaw and Partners, said the adjustment represented a relatively modest earnings downgrade of 5 or 6 per cent.

Still, shares in the group tumbled following the trading update yesterday and closed down $1.36 or 10.28 per cent at $11.87.

Investors were reacting to what had become a pattern of setbacks for QBE, Mr Crabb said.

“It’s walking up by the stairs and coming down by the escalator,” Mr Shaw said.

“They look like they’re getting there and then there’s a problem with crop protection in the US or there’s a cyclone or a hurricane somewhere.”