Bumper Crop Insurance Harvest a Win for QBE




Four months into its 2022 financial year, global insurer QBE is looking at a strong surge in premium income and earnings, even as it forecasts a loss of around $US75 million from the impact of Russia’s invasion of Ukraine war.

In a trading issued ahead of the company’s 2021 annual meeting in Sydney, QBE said gross written premiums had lifted by a “strong” 22% in its first quarter.

QBE said it had a strong start to the year in terms of revenue, despite flagging extra catastrophe costs from the war in Ukraine, the heavy rain and flooding in parts of Southern Queensland, Sydney and the northern NSW coast, as well as a big storm in the UK late in the northern winter.

It said it expected about $US75 million in net impact from the war, which would lead to insurance claims across various products, and would be treated as a catastrophe cost.

“QBE currently expects to have some exposure to the broader Russia/Ukraine conflict across a number of lines such as political violence, political risk and aviation,” the company said in the update.

Even so, QBE said natural catastrophe costs for the quarter were within its budget and its investment performance (on its float, or unused premium and payments) had improved thanks to rising bond yields and credit spreads. Both were boosted again this week with the Fed, the RBA and the Bank of England lifting key indicator rates.

CEO Andrew Horton said it had been a strong start to the year for its gross written premium, and the company would review its outlook for this financial year at its half-year results.

“Despite a number of natural catastrophes and significant geopolitical events, positive momentum experienced through FY21 continued into 1Q22, and I was pleased with QBE’s resilience through what was a turbulent operating environment,” Horton said.

One area of strong performance has been QBE’s crop insurance business which is aimed at the huge US rural markets.

Judging from what QBE said in the update it is looking at a $US600 million rise in premiums for crop which, if sustained, will go some way to boosting first half performance. But the business will have to negotiate the usual negatives of continuing dry weather in some places, tornados and wet weather and hail storms.

After placing some of the extra risk, QBE sees a $US100 million to $US200 million net boost from the higher premium income.

"QBE currently estimates that Crop gross written premium will be ~$3.3B in FY22, a significant increase from $2.7B in FY21. At this increased size, QBE has placed an external quota share on the 2022 underwriting year to manage net retention, and Crop net earned premium is expected to be ~$1.3-1.4B in FY22 from $1.2B in FY21.”

Interestingly, QBE has moved to cut its exposure to a small area of risk in the North American market - old accident liabilities - which will cost $US50 million.

"QBE has entered into a transaction (subject to regulatory approvals) to reinsure legacy North American Excess and Surplus (E&S) lines prior accident year liabilities. The transaction will reduce the Group’s exposure to further reserve volatility in this run-off portfolio, and is currently expected to adversely impact QBE’s FY22 underwriting result by ~$50M,’ QBE said.

Mr Horton added that "our strategy centred around resilience and consistency should result in the business being capable of delivering a consistent low to mid- 90s combined ratio.

"Based on our current view, in FY22 we continue to expect a Group combined operating ratio that demonstrates improvement on the FY21 exit combined operating ratio of ~94%,” he forecast.

Crop insurance has been something of a weak spot for QBE in the North American market so this year could one of those where it manages to get through the worst period without too much damage.

Investors liked the news in the update and bumped the shares up more than 5% to $12.68, the highest the shares have been since early February, before the Russian invasion of Ukraine at the end of that month.