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QBE shares lift as ROE, dividends, and profits surge

This morning QBE Insurance Group Ltd (ASX: QBE) released results for its financial half-year ending June 30, 2019. Below is a summary of the results with comparisons to the prior corresponding half. All figures in US$.

  • Gross written premium (GWP) up 1% to $7,637m
  • Cash profit after tax $520m, up 35%
  • Statutory net profit $463m, up 29%
  • Adjusted combined operating ratio improved to 95.2%, compared to 95.8%
  • Targeting adjusted combined operating ratio 94.5% – 96.5% over calendar 2019
  • Cash profit Return On Equity (ROE) 13.4%, up from 9.6%
  • Completed $174 million share buy back over the half
  • Interim dividend up 14% to A$0.25cps, franked at 60% (1H18 A$0.22cps, franked at 30%)
  • Debt to equity ratio reduced to 36.8% (FY18 38.0%)

QBE shares are up 2.5% to $12.38 in response to a strong result as the business continues to execute on a ‘turnaround’ strategy that involves pulling costs and selling off overseas businesses to simplify its structure.

QBE Group CEO, Pat Regan, said: ‘The Group’s half year financial performance reflected a further significant improvement in attritional claims experience across all divisions coupled with materially stronger investment returns. These were partly offset by an anticipated increase in the net cost of large individual risk and catastrophe claims following the successful renegotiation of the Group’s reinsurance program.”

The combined operating ratio is another key measure of profitability for insurers as its shows claims costs to premiums written in percentage form. So a ratio over 100% represents claims costs higher than gross written premiums.

QBE managed to pull its down to 95.2% over the first half of calendar 2019, which reflects good underwriting pricing and the known unknown of natural disasters and the like leading to claims.

Outlook

At $12.38 it offers a trailing yield of 4.3% and it completed a $174 million shares buy-back over the reporting period.

The ROE is also up to 13.4% with leverage lower to 36.8%. 

As such it’s fair to say the previously accident-prone QBE might be on the right track in turning itself around, although bargain hunters need to remember general insurance is a competitive and capital intensive space.

Others to consider for income include Suncorp Group Ltd (ASX: SUN) and Insurance Australia Group Ltd (ASX: IAG).

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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of Insurance Australia Group 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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