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Coronavirus: QBE scraps financial guidance

Earlier today, QBE Insurance Group Ltd (ASX: QBE) released an update informing the market that the company has had to withdraw its financial guidance for FY20.

Here’s why QBE has withdrawn its guidance and what this could mean for the insurance sector as a whole.

Why has QBE withdrawn its guidance?

QBE has withdrawn its full-year financial guidance due to the unprecedented and uncertain economic outlook that has resulted from the COVID-19 pandemic.

QBE’s CEO Pat Regan addressed the company’s decision, stating, “these are extraordinarily difficult times for all of our stakeholders: our customers, our broker partners, our staff, our shareholders and the community at large.”

In the market update, QBE elaborated that it has seen premium rate momentum from the first quarter continue into the second half. The company also assured investors that QBE remains in a strong capital position with good liquidity.

QBE is in the process of preparing various support measures for clients that have been affected by the pandemic. According to a spokesperson, QBE has been collaborating with the industry on various measures and packages for clients. These measures require regulatory authorisation and will be implemented as soon as approval is received.   

What did QBE forecast for 2020?

Earlier this year, QBE reported a strong full-year result, which was highlighted by a 41% increase in statutory net profit after tax to US$550 million. The insurer also saw a 6% increase in adjusted net cash profit after tax of US$733 million and an 8.9% cash profit return on equity.

In its outlook for 2020, QBE set financial targets of 93.5% to 95.5% for combined operating ratio and a range of 2.5% to 3% for net investment return. However, as addressed by the company today, these forecasts have been scrapped.

What is the outlook for the sector?

In past economic downturns, general insurers have been seen as a defensive sector to invest in as clients will want to keep their key assets insured. However, with many businesses being forced to shut down, commercial insurance could suffer as premiums and scope of coverage are reduced and policies cancelled.

In the case of QBE, the company has approximately 20% of its business exposed to Lenders Mortgage Insurance, which could be impacted if clients start defaulting on home loans.

Foolish takeaway

QBE has joined the list of ASX shares that have scrapped their guidance as a result of the COVID-19 pandemic. Despite the announcement, the company’s share price is relatively flat at the time of writing. However, the QBE share price has already tumbled more than 47% from its February highs.

QBE will look to further update the market on its financial guidance at the company’s annual general meeting to be held virtually on 7 May 2020.

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Motley Fool contributor Nikhil Gangaram 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.