The QBE Insurance Group Ltd (ASX: QBE) share price is having a poor start to the week.
In morning trade, the insurance giant's shares are down 4% to $11.91.
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Why is the QBE share price dropping?
The catalyst for the weakness in the QBE share price on Monday has been the release of an update on the company's performance in FY 2022.
According to the release, while QBE's performance during the third quarter was resilient, it was impacted by inclement weather. Management summarised:
QBE updates on recent trading performance through 3Q22 and updated full year outlook. While performance remains resilient across many facets of our business, higher than expected catastrophe costs have introduced some risk to our full year outlook.
Gross written premium growth
QBE revealed that its gross written premium growth remained strong in the third quarter and was up 6% (13% in constant currency) on the prior corresponding period.
Group-wide renewal rate increases averaged 8.4%, while growth ex-rate of 8% reduced compared to first half. This reduction followed planned North America Program terminations and a large first half bias for written premium across a number of growth focus areas.
Retention has remained at favourable levels. In the year to September, group gross written premium growth was 12% (16% in constant currency) on the prior period, with an ex-rate growth of 11%.
Excluding Crop, gross written premiums increased by 12% in constant currency, with ex-rate growth of 6%.
Underwriting performance
Unfortunately, QBE's underwriting performance was impacted by elevated catastrophe activity.
As of the end of October, the net cost of catastrophe claims in the second half was tracking ~US$430 million, with the total net cost of catastrophe claims tracking at ~US$880 million in the year to October.
In light of this, management now expects FY 2022 net catastrophe costs of ~US$1,060 million, which is up from its catastrophe allowance of US$962 million.
Outlook
Commenting on its outlook, management revealed that it no longer expected its combined operating ratio to improve on FY 2021's exit ratio of 94%. It concludes:
Challenging operating conditions have persisted into the second half, and while performance remains resilient across many facets of our business, higher than expected catastrophe costs have introduced some risk to our original full year outlook.
QBE continues to expect FY22 Group constant currency GWP growth of around 10%, and we expect the supportive premium rate environment should continue into 2023.
Based on our assessment of underwriting performance to date, we now expect a FY22 Group combined operating ratio of around 94%. As outlined at the 1H22 result, QBE's FY22 combined ratio outlook excludes the impact of the Australian pricing promise review.
