Natural disasters wipe QBE’s profit
Townsville QBE Insurance has warned that 2017 will likely be “the costliest year in the history of the global insurance industry” as a succession of natural disasters take a deep toll.
The Australian insurance heavyweight has signalled it will slide into the red this year “following a period of extreme global catastrophe experience”.
In a letter to investors yesterday, QBE announced it had increased its claims allowance for catastrophes and large individual claims, which usually relate to commercial operations.
QBE, a $ 14 billion global insurance group, said it was responding to a run of natural disasters.
The claims allowance has been pushed out to $ 1.75 billion for the final quarter of the year alone and will likely drag the company into an operating loss this year.
It said disasters such as Cyclone Debbie, which hit Queensland in March, and hurricanes Harvey, Irma and Maria, which devastated the Caribbean, Texas and Florida in recent weeks, were among the events contributing to the decision.
They, and the earthquake last month in central Mexico, had all resulted in significant claims for the company, it said.
“The catastrophic events over the past month have caused a tragic loss of life and substantial and widespread property and infrastructure damage,” QBE chief John Neal said.
“Our thoughts are with those affected by these devastating events including our customers, business partners and employees.”
Due to the increased catastrophe and large claims allowance, QBE will take a pre- tax hit of $ 600 million.
This, the company said, would push its operating ratio to between 100 per cent and 102 per cent – meaning the company will pay out as much as $ 1.02 for every $ 1 it collects in insurance premiums.
Following the revelations, QBE shares tumbled 5 per cent in early trading to an 11- month low of $ 9.65.
Hurricane Irma churned through Florida last month, bringing with it winds over 200km/ h, just weeks after Hurricane Harvey caused widespread flooding across Texas.
It was the first recorded instance of two category four hurricanes hitting the US in the same season, fuelled by above- average water temperatures.
Earlier this year, Geoff Summerhayes, an executive board member of the Australian Prudential Regulation Authority that regulates insurance and financial companies, said climate change was a “material” risk to companies.
Mr Summerhayes warned company directors could be liable if they failed to incorporate climate change risks into their financial models and disclose the risks they faced.
QBE, which operates in 37 countries, is the only major Australian insurer to have substantial business in the US.
“While it is too early to speculate how much reinsurance and primary insurance pricing will rise as a result of recent catastrophe experience, QBE is well placed to benefit from price rises with much of our reinsurance programs already purchased for 2018,” Mr Neal said.
Last month it was announced Mr Neal would be replaced by his former chief financial officer, Patrick Regan, following a boardroom scandal and a surprise downgrade in the group’s earnings outlook earlier this year.
That downgrade, in June, came just ahead of the group’s first- half results, caused by a small claims blowout in Latin America and Asia after an increase in marine and fire damages in Hong Kong and Singapore and a poor crop insurance result in Ecuador and Chile.
It also said there were continuing problems in its Colombian third- party motor insurance business.
The company has since split its emerging markets business into separate Asia and Latin American divisions and is considering exiting markets in Latin America.