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QBE share price on watch after announcing $60 million liability

The QBE Insurance Group Ltd (ASX: QBE) share price fell in morning trade after the company announced a one-off liability increase of $60 million ahead of results and has now inched back up to $11.87 at the time of writing.

What did QBE announce this morning?

Just after market open, QBE announced that the UK Ministry of Justice’s recent decision to change the statutory discount rate for use in the determination of lump-sum payments in relation to UK personal injury claims (Ogden tables) may have a material impact on its full-year numbers.

As previously disclosed, QBE said that it has been using a discount rate of 0.25% for the purposes of determining Ogden-related lump sum payments.

QBE reported that after assessing the potential impact of this change, QBE said that the adoption of the revised statutory rate of -0.25% is expected to result in a one-off increase in the company’s estimate of outstanding claims liabilities of approximately $60 million.

The above outcome was not allowed for in QBE’s 2019 targeted combined operating ratio range of 94.5–96.5% outlined in its 2018 Annual Report, 2018 full-year results presentation and its ASX market release on 25 February 2019.

According to management, in keeping with previous Ogden adjustments, QBE has said the impact will be reported as an adjustment to its 1H19 and FY19 statutory results.

How has the QBE share price performed in 2019?

While we await QBE’s results release in August this year, the company’s share price has been one of the better performers in the Financials sector so far this year.

The QBE share price has managed to climb 19.7% higher as a relatively favourable result from the 2018 Financial Services Royal Commission and solid net written premium results have translated into capital gains for investors.

In terms of other top performers, QBE is ahead of fellow insurer Challenger Ltd (ASX: CGF) in terms of equity performer but trails the likes of Magellan Financial Group Ltd (ASX: MFG), which has watched its share price has surge 145% higher since the start of the year.

While the insurance industry has been destabilised by regulatory uncertainty and an increasing number of extraordinary insurance events, it may be worth looking at the Big Four banks again as they continue to rebound after the Royal Commission.

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Challenger Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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