QBE profits drop; completes capital raising
Australian insurer QBE Insurance posted an 18 percent fall in its net profits in the first half of 2014 as it announced plans to partially float its mortgage insurance business and raised some $600 million of new capital.
The capital raising is one of several initiatives by QBE aimed at significantly improving its capital strength and balance sheet. It should also “facilitate the accelerated implementation of the group’s revised investment strategy, with positive implications for profit growth and return on equity,” said John Neal, QBE chief executive officer.
The proceeds of the capital raising will primarily be used to repurchase and cancel $500 million of convertible subordinated debt.
The insurer also plans asset sales, including the sale of its US agency businesses, and the partial IPO of QBE LMI in 2015.
QBE’s profits dropped in the first half of 2014 to $392 million, compared with $477 million in the first half of 2013. Its gross written premiums also fell, down 10 percent to $8.4 billion compared with $9.4 billion in the prior corresponding period, mainly due to Europe and North America.
QBE said that lower premiums in Europe largely reflect its previously advised intention to exit a number of non-core and poorly performing businesses as well as in response to market conditions.
“The premium contraction in North America was primarily due to a further significant reduction in the lender-placed portfolio coupled with a reduction in program premium due to the termination of poorly performing program relationships,” said the insurer.
Its combined ratio deteriorated to 96.5 percent, compared with 92.8 percent in the same period of 2013.
Neal said: “Today’s results are as foreshadowed in the update provided to the market on 29 July. Other than in Latin America, the group’s divisional results are solid and in line with our internal plans. The necessary reserve strengthening in our Latin American operations is frustrating; however, we acted decisively to put this issue behind us.
“Our results show tangible signs of returning to levels more consistent with shareholders’ expectations absent the Latin American reserve development and the impact of lower risk-free rates. I look forward to continued improvement in performance across the remainder of 2014.
“Furthermore, we have successfully reinsured the risk of any further adverse development with respect to the Group’s Italian and Spanish medical malpractice claims reserves, thereby increasing the overall predictability of the Group’s reserves.
“Our operational transformation program is on track. This and the proposed capital initiatives will substantially improve the financial strength of the Group, supporting more predictable and sustainable earnings for shareholders.”
