The QBE Insurance Group Ltd (ASX: QBE) share price is falling on Friday following the release of its full year results.
At the time of writing, the insurance giant's shares are down 9% to $11.51.
QBE share price sinks after earnings miss
- Gross written premiums (GWP) up 25.7% (21% in constant currency) to US$18,453 million
- GWP ex Crop up 18% year on year
- Underwriting profit up 316% year on year to US$695 million
- Combined operating ratio of 93.7%
- Statutory net profit after tax of US$750 million, compared to loss of US$1.5 billion
- Adjusted net cash profit after tax of US$805 million
- Final dividend of 19 Australian cents per share, bringing the FY 2021 dividend to 30 Australian cents per share
What happened in FY 2021?
For the 12 months ended 31 December, QBE delivered a 25.7% increase in GWP (or 21% in constant currency) to US$18,453 million. This reflects the strong premium rate environment as well as improved customer retention and new business growth across all regions. Management also notes that growth in Crop was especially strong at 51%. This was due to the significant increase in corn and soybean prices, coupled with targeted organic growth.
Positively, premium rate increases are ongoing with company-wide renewal rate increases averaging 9.7% during the year. This is consistent with the first half and 9.8% in FY 2020. And while premium rate momentum moderated slightly in International across the year, momentum accelerated in North America and Australia Pacific during the second half.
As for its profits, QBE reported a statutory FY 2021 combined operating ratio of 93.7%. This compares favourably with 104.2% in the prior year, which was significantly impacted by COVID-19 claims and adverse prior accident year claims development. Anything below 100% is profitable and vice versa if the ratio is above 100%.
This ultimately led to the company reporting a statutory net profit after tax of US$750 million, up from a loss of US$1.5 billion a year earlier. And on an adjusted net cash basis, its profit after tax came in at US$805 million.
While this looks strong on paper, it is below the market consensus estimate of US$870 million. This may explain the weakness in the QBE share price today.
Outlook
QBE's new CEO, Andrew Horton, was pleased with the year and appears cautiously optimistic on the future.
He said: "Following another year of elevated natural catastrophe claims costs alongside rising inflationary signals and continued low interest rates, the industry operating environment remains highly uncertain. Because of this, the premium pricing environment is likely to remain positive in 2022."
"In light of this, we expect gross written premium growth to be in the high single digits in 2022. Moreover, delivery against our strategic priorities should result in an improved and more consistent return profile over time such that the Group is capable of consistently delivering a low to mid-90's combined operating ratio. "In FY22, we expect the business will achieve further steady improvement on the FY21 'exit' combined operating ratio of ~94%."
