Two specialty insurers saw their 2013 first-half net incomes fall, as Markel Corporation contends with costs associated with its acquisition of Alterra and QBE experiences some struggles in its North America business.
Australia's QBE says its net profit after tax for the first six months of the year was $477 million, down from $760 million for the same period a year ago. The company cites lower investment yields for the drop, but also points to an increase in non-cash charges "largely due to accelerated amortization relating to our U.S. lender-placed insurance business."
QBE's North American business suffered in the half-year. The insurer says gross written premium for its North American operations is forecast to be down $600 million from its initial 2013 forecast "due to management action on underperforming business, general market conditions and the significantly lower premium from" QBE's lender-placed insurance portfolio.
Lender-placed insurance has come under regulatory scrutiny in New York, Florida and elsewhere in the U.S., as officials have looked into what they say are high premiums charged and only a small percentage of those premiums spent on claims.
QBE Group CEO John Neal said in a conference call it's been "a pretty tough 12 months for our lender placed insurer…whether it's been regulatory challenges or rate implications."
The insurer also states that lender-placed premium "is well below our previously expected target, largely due to a material reduction in mortgage loans being serviced on behalf of Bank of America, one of our main banking clients. The sale by Bank of America of significant proportions of its loan portfolio caused the immediate cancellation of some policies, requiring us to refund an element of the unearned premium rather than an orderly and more gradual run-off of affected policies."
Neal said the company has considered its lender-placed product design and structure, and he notes that while QBE is seeing a small loss out of that insurer so far in 2013, he is confident it can win new banking lines going forward.
Outside of North America, Neal says the company has achieved "very good" results in Australia and New Zealand, "excellent" results in Asia and Pacific, and "good" results in Europe and Latin America.
Richmond, Va.-based Markel says its 2013 second-quarter net income available to shareholders was $27.8 million, down from $89.7 million for the same period a year ago. For the first six months of the year, net income available to shareholders was $116.7 million, down from $146.9 million a year ago.
The company's results suffered some due to transaction costs and acquisition-related expenses related to Markel's purchase of Alterra. Alterra also contributed $25.4 million in catastrophe losses over the first six months of the year.
"Together, these items added 11 points and six points to the consolidated combined ratio for the quarter and six months ended June 30, 2013, respectively," Markel says in a statement.
The second-quarter combined ratio was 103, up from 87 for 2012's second quarter. For the first six months, the combined ratio was 98, up from 93 for the same period a year ago.
Alan I. Kirshner, Markel chairman and CEO says in a statement, "We completed the acquisition of Alterra on May 1, 2013, which was accretive to book value and tangible book value per share. While our consolidated underwriting results for the quarter were significantly impacted by transaction costs and acquisition-related expenses, the underwriting results of our legacy Markel operations for the quarter were strong, reflecting a 17 percent increase in gross premium volume and a combined ratio of 89."
He adds, "The process of integrating Alterra into Markel's operations is well underway, and we are just beginning to realize the opportunities of our enhanced scale."
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