QBE: 2011 Profit Could Be Down 50% on Record Cat Claims

NU Online News Service,  Jan. 13, 10:41 a.m. EST

Australia's QBE Insurance Group says a record level of catastrophe claims in 2011 prompted the company to warn investors that its profit will be down up to 50 percent.

The country's largest insurer says that its annual report is to be released at the end of February but projections are not good. It lowered its profit margin to between 7 percent and 7.5 percent from a previous forecast of 11 percent.

After the first six months of 2011, QBE cut its profit margin to 11.2 percent from 15.8 percent as catastrophe losses totaled nearly $1.1 billion.

The company also decreased its dividend, but says its capital adequacy exceeds its minimum target.

Earthquakes in New Zealand as well as flooding in Australia in 2011 were to blame for plenty of claims, but Frank O'Halloran, QBE's chief executive officer, says the frequency of events during the second half of the year—though they may have garnered fewer headlines—“continued at an unprecedented level.”

O'Halloran lists Hurricane Irene, tornadoes, wildfires, hail, flooding and wind and snow storms in theU.S.as well as the flooding inThailand, bush fires inAustraliaand riots inEurope.

“OurU.S.crop-insurance business produced a below-average underwriting profit due to the severe hail and flood claims,” he adds in a statement.

“We have made a number of changes to lessen the impact of a continuation of this heightened level of catastrophes going forward,” O'Halloran continues. “This includes substantially increased premium rates for property classes of business, higher deductibles, the purchase of more reinsurance for a frequency of catastrophes and reducing exposures in some areas.”

The insurance group's 2012 reinsurance has been placed, with an expected overall increase in cost of about 5 percent.

QBE says rate increases are being sought inAustralia,New Zealand, theU.S., and parts of Asia,LatinaAmericaandEurope.

The outlook for 2012 is positive, says QBE, with a targeted combined operating ratio of 89 and an underlying profit margin of about 15 percent.