QBE (ASX:QBE) share price in focus after delivering strong first half growth

This insurance giant is back on form…

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The QBE Insurance Group Ltd (ASX: QBE) share price could be on the move today.

This follows the release of the insurance giant’s half year results this morning.

QBE share price on watch after reporting strong first half growth

  • Gross written premium (GWP) increased 26.9% to US$10,203 million
  • Net earned premium rose 8.9% to US$6,571 million
  • Combined operating ratio improved to 93.3%
  • Underwriting result of US$642 million, compared to loss of US$189 million
  • Adjusted cash profit after tax of US$463 million, compared to US$66 million loss.
  • Interim dividend of 11 Australian cents per share, up from 4 Australian cents per share in the prior period

What happened for QBE in the first half?

Positively for the QBE share price, for the six months ended 30 June, a material turnaround in both underwriting and investment returns underpinned strong profit growth for the company.

The release notes that QBE’s GWP grew strongly over the prior corresponding period thanks to the strong premium rate environment, improved customer retention, and new business growth across all regions.

One of the highlights was its Crop business. It grew 48% due to the significant increase in corn and soybean prices and targeted organic growth. For example, overall GWP increased by 14% on a constant currency basis excluding Crop and 20% including Crop.

In respect to premium increases, the company revealed that it achieved group-wide average rate increases of 9.7% during the half. Though, it does note that rate momentum is showing signs of moderating in some geographies and products. This is particularly the case in International Markets.

Another positive that may give the QBE share price a boost today was its improving combined operating ratio. It came in at 93.3% during the half, compared to 103.4% in the prior period. A reading below 100% represents profitable underwriting.

What did management say?

QBE’s Interim CEO, Richard Pryce, was pleased with the improved performance during the half.

He said: “Notwithstanding the heightened level of catastrophes during the half which remain a major issue for the industry, I am very pleased with the improvement in the underwriting result and the strong but targeted premium growth.”

“While we continue to benefit from meaningful compound premium rate increases in all our geographies, there are signs that pricing momentum is moderating, particularly in International Markets. Regardless, we will remain vigilant in balancing premium growth and pricing adequacy for an appropriate risk adjusted return on capital, with claims inflation and catastrophe costs key areas of ongoing focus,” he added.

What’s next for QBE?

No guidance has been provided for the second half of FY 2021, which could potentially weigh on the QBE share price a little today.

Though, the company advised that it continue to push on with its efficiency program focused on IT modernisation and digitisation. It notes that it has challenged itself around historic operating structures and work practices to develop a more modern and high performing business.

As part of this, QBE is targeting an expense ratio of 13% by 2023 compared with 13.7% today. It expects to incur a restructuring charge of $150 million to be expensed over three years, of which $29 million was recognised in the half.

The QBE share price is up 35% in 2021.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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