QBE share price sinks as catastrophe claims take a bite out of revenues

ASX 200 investors are bidding down the QBE share price following the release of the insurance company's half-year financial results.

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The QBE Insurance Group Ltd (ASX: QBE) share price is down 2.8% in morning trade on Thursday.

Shares in the S&P/ASX 200 Index (ASX: XJO) insurance company closed yesterday trading for $15.16. At the time of writing, shares are swapping hands for $15.16.

Investors are bidding down the QBE share price following the release of the company's half-year financial results for the six months ending 30 June (1H23).

Read on for the highlights.

(*Note, all figures are in US dollars.)

QBE share price slides despite half-year profit lift

  • Net profit after tax (NPAT) of $400 million, up from $48 million in 1H22
  • Gross written premium of $12.8 billion up from $11.6 billion year on year
  • Premium rate increases of 10.2%, up from 8.1% in the prior corresponding half-year
  • Partly franked interim dividend of 14 cents per share, up from 9 cents in 1H22

What else happened during the half year?

The ASX 200 insurer reported continuing premium growth over the six months, with renewal rate increases of 10.2%. This helped drive gross written premium growth of 13%.

However, the QBE share price could be under some pressure with a series of catastrophic events impacting underwriting performance and seeing catastrophe costs exceed the first-half allowance.

The company reported that the net cost of catastrophe claims increased to $699 million in 1H23. This represents 8.7% of net insurance revenue, up from 6.2% in the prior period.

Net insurance revenue came in at $7.9 billion.

The combined operating ratio increased to 98.8% from 94.9% in the prior period.

On the plus side of the ledger, the significant increase in interest rates and tighter credit spreads saw half-year total investment income reach $662 million, compared to a loss of $20 million for the prior period.

As for the interim dividend, management said the payout ratio of 35% of adjusted cash profit reflects the current strength of QBE's capital position, and what remains a favourable outlook for continued growth.

QBE's indicative regulatory capital Prescribed Capital Amount (PCA) multiple improved to 1.80 times during the half, which is at the upper end of the company's 1.6 times to 1.8 times target range.

What did management say?

Commenting on the results that look to be pressuring the QBE share price today, CEO Andrew Horton said:

Challenges from catastrophe events over the period serve to reinforce our focus and aspiration to build a more resilient and consistent business.

While I'm pleased with the progress we've made across our strategic priorities, our performance this half highlights there is more work to be done.

What's next?

Looking at what might impact the QBE share price in the months ahead, Horton said:

Our strategy to improve balance and returns in North America remains the primary focus for the board and management. While our core business in North America is now in better balance, we remain focused on portfolio quality, further reducing catastrophe exposure and better managing volatility.

QBE is forecasting 2023 constant currency gross written premium growth of around 10%, and a combined operating ratio of around 94.5%, which excludes the upfront cost of the $1.9 billion reserve transaction.

As for investment returns, QBE expects a 1H23 exit running yield of 4.9%.

QBE share price snapshot

Despite today's dip, the QBE share price remains up 25% over 12 months.

Motley Fool contributor Bernd Struben 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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