As QBE delivered a 35 per cent lift in half-year cash profits to US$520 million ($766 million) on Thursday, helped by much stronger investment returns, chief executive Pat Regan highlighted the trend of rising premiums both in Australia and overseas.
QBE benefited from strong returns on fixed income assets, equities, property and infrastructure in the half, all of which helped it achieve investment yields of 6.8 per cent on an annualised basis.
Mr. Regan said investment returns would “probably not” do as much heavy lifting for QBE in the second half. But with premiums having gone up by 4.7 pe cent, he said he expected more growth in premiums of about this rate. Australian premiums have been going up for several years, but the key markets of London and the US were now also becoming more supportive, he said.
“As it turns out right now, the pricing environment in insurance is actually more positive than it’s been for some time," Mr. Regan said.
QBE makes about a third of its profit in the US, where its crop insurance business had a weaker half year due mainly to poor conditions for farmers.
The insurer, which has been rebuilding its business after a period of poor performance, reaffirmed its profit guidance on Thursday, and declared an interim dividend of 25c a share, 14 per cent higher than last year. The dividend will be franked at 60 per cent and paid on October 4. On a statutory basis, profits rose 20 per cent to US$463 million.
Portfolio manager at Regal Funds Management, Mark Nathan, highlighted a decline in the share of claims worth less than US$2.5 million, known as "attritional claims," which he said was a sign the underlying operations were being well run.
Mr Nathan said an "obvious headwind" for QBE was the prospect of lower investment returns n global bond markets, but the business could manage this challenge through higher premiums.
"It was one of the first times for a long time that QBE has delivered a really solid result without any major issues," Mr. Nathan said.
Under Mr. Regan, QBE has shed poorly performing businesses in emerging markets and unleashed a program to focus on its underwriting quality and cost-cutting, which has helped to rebuild investor confidence in the stock after a run of profit downgrades earlier in the decade.
Bell Potter analyst TS Lim said that while the result was helped by strong investment returns, the underwriting result was also "solid." Mr. Lim said he thought management under Mr Regan had addressed most of the problems the market had previously identified with QBE. "It's a different company altogether," said Mr Lim, who has a "hold" recommendation on QBE.
In a sign of a better insurance underwriting result, QBE said its combined operating ratio, which compares claims and costs to premiums, fell to 95.2 percent, down from 95.8 percent. A lower ratio reflects higher profitability. Cash return on equity was 13.4 percent, up from 9.6 per cent.
Outside the weaker US cropping business, QBE said its Australian mortgage insurance arm had been affected by a "normalisation" that saw its combined operating ratio increase from 50.6 percent to 58.5 percent.
Mr. Regan also announced the appointment of a new chief executive of North America, Todd Jones, to replace Russ Johnston.