QBE Insurance Group Ltd (ASX: QBE) released its full-year results to the market for the period ending 31 December 2018, reporting a cash profit after tax of US $715 million compared to a loss of $1.25 billion in the prior year.
QBE is an international insurance company, with operations mainly in Australia, America, Europe and the Asia Pacific region.
Key Results
QBE reported (all figures are USD unless stated otherwise):
- Gross written premium up 3% to $13.66 billion
- Adjusted combined operating ratio of 95.7% (prior year 103.9%)
- Additional claims ratio (excluding Crop and LMI) improved to 50.2% (prior year 53.1%)
- Adjusted commission and expense ratio broadly stable at 31.6% (prior year 31.8%)
- Net investment yield of 2.2% (prior year 3.1%)
- Debt to equity ratio reduced to 38% (prior year 40.8%)
- Cash profit after tax of $715 million (prior year loss of $262 million)
- Net profit after tax (NPAT) of $390 million (prior year loss of $1,249 million)
- Final dividend of AUD 28cps franked at 60% (prior year 4cps franked at 30%), bringing the total dividends for the year to 50cps (prior year 26cps).
These key results include various assumptions and should be reviewed diligently to see what they exclude.
Management Commentary
CEO Pat Regan said, “the actions we have taken to simplify the Group, implement a rigorous performance management framework and upgrade core capabilities in pricing, risk selection and claims management delivered meaningful improvement in the underlying quality of our business and our financial performance in 2018”.
Future Outlook
The company reported they expected a combined operating ratio of 94.5-96.5% in FY19 with a net investment return of 3% to 3.5%.
Rask Perspective
While it was a nice recovery from last year’s loss due to hurricanes and wildfires in the US, lumpy earnings are the inherent nature of an insurance company like QBE. The key is being able to raise premiums in disaster periods like last year and maintain them, along with disciplined underwriting.
While the company reported it raised premiums an average of 5% on a continuing operations basis in 2018, I feel QBE is not as disciplined as other insurance providers at underwriting. Therefore, QBE is not a stock I will be looking to add to my portfolio.
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