QBE share price lifts despite $840 million income hit

The insurance giant released its half-year earnings results this morning.

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Key points

  • QBE share price jumps 3.7% after the insurer released it half-year results today
  • The company’s bottom line suffered with lower after-tax profits
  • The insurer announced a lower dividend of 9 cents per share, down from 11 cents in the prior period

The QBE Insurance Group Ltd (ASX: QBE) share price is in the green today, up 3.7% despite reporting mixed half-year results for HY22. At the time of writing, the insurance giant is trading at $12.60.

The company's biggest hit came from its investment income amid changes to the risk-free rate that caused large unrealised losses for bond yields.

In other parts of its investment portfolio, unfavourable credit spreads and unrealised losses on equities contributed to its contraction in investment income.

However, the ASX finance share also reported top-line premium growth of 13.78% and a lower combined operating ratio (COR) of 0.42%, suggesting it received more in premiums than it paid in claims from the prior period.

What did QBE report?

  • Gross written premiums up 13.78% from HY21 to 11.6 billion
  • COR down 0.42% from HY21 to 92.9
  • Net profit after tax (NPAT) down 65.75% from HY21 to 151 million
  • Net investment income drops 1548.27% to a negative 840 million, down from $58 million
  • Adjusted cash return on equity slips to 4.3%, down from 11.9% in HY21

The insurer reported an $840 million loss in investment income for HY22, but excluding the risk-free rate, came in positive at $14 million.

Net profit contracted due to several headwinds, the company said.. These included the impact on its investment portfolio and the reinsuring of North America excess and surplus (E&S) lines.

Despite facing headwinds for its bottom line, QBE Insurance improved its COR, which was helped by an 18% growth of its gross written premiums from 2021.

What else happened in HY22?

QBE reported the highest premium growth in its international operating segment outside of North America and Australia Pacific, growing 18.5%. Results were buoyed by lower catastrophe costs, which helped reduce the impact of war in Ukraine and positive operating leverage.

QBE also mentioned the issue of inflation in its report. It cited that the cost of claim payments was not perfectly correlated with inflation, meaning that QBE believed other factors besides inflation were affecting the cost of its claim payments.

What did management say?

Commenting on the results, QBE Insurance CEO Andrew Horton said: 

Launched in February 2022, we have made pleasing progress against our new strategic priorities. Over the half, we placed significant focus on our North America operations. 

We have materially simplified the business and I am confident we have the right strategy and team in place to drive a sustained improvement in performance.

What's next?

For the rest of this year, gross written premiums (GWPs) are expected to rise at roughly 10%. The company noted in its outlook that the market could support organic growth with a moderate premium rate increase.

The company also expects to beat the COR of -94% it finished on in FY21.

Over the next 12 months, QBE Insurance will undergo a re-risking process for its investments. The exit total investment return is on track for a -2.8% contraction.

QBE share price snapshot

The QBE share price is up 9.12% over the past 12 months. Shares in the company are beating the S&P/ASX 200 Financials Index (ASX: XFJ) by a convincing margin, as it is currently down 6.27% for the same period.
QBE Insurance's market capitalisation is $18.6 billion at the latest share price action.

Motley Fool contributor Matthew Farley 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 Scott Phillips.

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