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QBE Insurance share price on watch after North American update

The QBE Insurance Group Ltd (ASX: QBE) share price will be on watch on Wednesday after releasing an update on its North American Crop insurance business.

What did QBE announce?

This morning QBE revealed that an unusually cool growing season and heightened crop hail have impacted its performance in the North American market.

According to the release, due to prevented planting claims and yield shortfalls, the North American Crop insurance business is now expected to report a 2019 current accident year combined operating ratio of around 107% – 109% on net earned premium of nearly $1.2 billion.

The combined operating ratio is a measure of insurance underwriting profitability. Quite simply, if the costs are higher than the premiums (if the ratio is more than 100%) then the underwriting is unprofitable.

As a comparison, the North American Crop insurance business reported a combined operating ratio of 98% in the first half. That itself was notably higher than its 10-year average combined operating ratio of around 90%.

Will this impact the rest of the business?

Unfortunately, the adverse weather conditions are also anticipated to contribute to slightly elevated attritional loss experience in some of its other North American property classes.

As a result, management has warned that the company’s overall combined operating ratio could be slightly above the top end of its 2019 target range of 94.5% – 96.5%.

One positive, though, is that management expects a big improvement in FY 2020. Thanks to ongoing margin improvement underpinned by cell reviews, pricing momentum, and its operational efficiency drive, QBE anticipates a 2020 combined operating ratio target range of 93.5% – 95.5% in 2020.

Another positive is that QBE’s investment performance remains on track. It continues to expect to report a net investment return towards the upper end of its 2019 target range of 3.0% – 3.5%.

QBE Group CEO, Pat Regan, said: “It’s been an unusually weather-impacted harvest in North America this year. But we’ve got a terrific Crop insurance business that should stand us in good stead looking forward. The rest of the Group continues to perform well and it is pleasing to see pricing momentum accelerate.”

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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