QBE Insurance Group Ltd (ASX: QBE) shares are sinking on Friday.
In morning trade, the insurance giant's shares are down almost 5% to $15.58.
This follows the release of the ASX 200 stock's half year results.
QBE shares sink on half year results
- Gross written premium (GWP) up 1.9% to US$13,051 million
- Net insurance revenue up 6.7% to US$8,512 million
- Combined operating ratio of 93.8%
- Net profit after tax up 100% to US$802 million
- Interim dividend per share up 71.4% to 24 Australian cents
What happened during the half?
For the six months ended 30 June, QBE's GWP increased 1.9% to US$13,051 million.
Management notes that its momentum continues with constant currency growth of 2%, or 6% excluding Crop, and 11% on further adjusting for exited portfolios. Strong growth of 12% was achieved in International, while portfolio exits resulted in flat premium in Australia Pacific, and a 6% reduction in North America.
Another positive was that its combined operating ratio improved to 93.8% from 98.8% in the prior year. As a reminder, anything below 100% is profitable for insurance companies, so the lower the number the better. Management advised that this reflects continued premium renewal rate increases, lower catastrophe costs, and more stable reserve development.
This ultimately led to QBE delivering a 100% increase in net profit after tax to US$802 million, allowing its board to increase its interim dividend by 71.4% to 24 Australian cents per share.
However, the former is short of the Goldman Sachs' expectation of US$818 million, which could explain some of the selling today.
Management commentary
QBE's group CEO, Andrew Horton, was pleased with the company's performance during the half. He said:
We have seen a positive start to the year, highlighted by further improvement in underwriting performance and strong return on equity. We have taken further steps to reduce volatility and ensure better performance in North America, and remain excited about the outlook for our business.
We delivered a series of important initiatives through the period to support greater resilience and consistency. The shape and health of our underwriting portfolio has improved materially over recent years, and as a result, our priorities are becoming more future-focused.
Horton also touched on the closure of the middle market business in North America and expects it to boost the company's performance. He said:
We announced our decision to commence an orderly closure of North America middle-market, which supports our continued focus on portfolio optimisation and improving performance in North America. This will allow us to refocus our North America strategy on those businesses which hold more meaningful market position, relevance and scale.
Outlook
Management has provided guidance for the full year. It expects:
- Constant currency GWP growth of ~3%
- Combined operating ratio of ~93.5%
This outlook also appears to be short of expectations and could be why QBE shares are falling today. For example, Goldman Sachs was expecting mid-single digit GWP growth for the full year.
Following today's decline, the QBE share price is now largely flat over the past 12 months.
