QBE Declares Big Loss, No Dividend




As expected the impact of COVID in various ways has forced global insurer QBE to omit paying a final dividend after a loss for 2020 of $US1.5 billion ($1.93 billion).

QBE had guided the market to expect a huge loss because of the impact of COVID, the need for extra provisions on business interruption policies here and in the UK, reduced investment income and more natural disasters claims in Australia and in the US.

QBE’s result is a $US 2 billion reversal of 2019’s $US550 million profit and final dividend of 27 cents a share.

QBE’s combined operating ratio – the difference between premiums received and claims paid – was 104.2%, compared with 97.5% last year.

A ratio of 100% or more generates an underwriting loss and the absence of significant income flows from investments (most of its reserves are invested in high rated government and corporate bonds) only adds to the size of the loss.

QBE’s group’s catastrophe claims for the year cost $US668 million or 5.8% of net earned premium, up from $US426 million in 2019 and $US134 million above its allowance.

The bulk of these claims were related to last summer’s Australian bushfires and east coast hail as well as US fires and Atlantic hurricanes.

Crop insurance in the US remains a problem as well and the current massive freeze across much of the south and midwest will see further pressure in this line of business as we continue into 2021.

On top of that QBE was forced to add to its reserves in case of a surge in business interruption insurance claims following court cases in NSW and the UK that exposed a larger than expected liability.

The insurance industry has signalled an appeal of the decision by a full bench of the NSW Court of Appeal on a test case and the UK situation remains uncertain.

QBE was forced to boost its reserves by $US185 million in January another defeat in the UK courts over whether insurers are liable to pay out business interruption claims to policyholders impacted by COVID-19 lockdowns.

That means the company is currently bracing for at least $US785 million in claims, but said the exposure in Australia remains uncertain, pending the possible High Court appeal.

Rival IAG has made an $A800 million provision for similar claims and raised $A750 million from shareholders last year to make sure it had enough fat to cover any surge in claims.

QBE pointed to one bit of good news - its premium renewal rate increased to 9.8% compared with 6.3% the previous year and gross written premiums grew by 10% to $US14.6 billion for the year.