Australian insurer
QBE has revealed plans to create a joint venture structure for two of its Australian agency businesses, divest its US agency business, and finalise the sale of its Central and Eastern European operations.
The firm is to partially sell strata CHU Underwriting Agencies and Underwriting Agencies of Australia (UAA) businesses.
QBE Group CEO John Neal stressed that the insurer will maintain 100% of the underwriting and retain a share in the ownership of the business, although it is undecided how much.
QBE has appointed advisors in Australia to handle the sale. QBE will gauge the interest and then decide how to structure the transactions.
CHU specialises in strata and UAA has a focus on mobile plant. Speaking at a first half of the year results media briefing yesterday, Neal explained why the insurer has chosen those agencies: “The only other agencies we own are inextricably linked with the underwriting […] so you wouldn’t really deems them to be independent underwriting agencies.”
In an analyst call, also yesterday, Neal explained the insurer does not receive “capital recognition” from owning the agencies.
“Our agency businesses are highly valued but in reality, from QBE’s perspective, we value the underwriting that comes with these businesses in that no regulator or rating agency will give us any capital recognition for ownership of these agencies.”
Yesterday, QBE revealed it would also complete the sale of its Central and Eastern European businesses in the second half of the year and divest its US agency business. QBE will retain its middle market business in North America. Neal stressed this is not due to lack of interest and that the company was in fact “overwhelmed” by the amount of interest in acquiring it.
He said the middle market business in North America had bounced back: “In the first half of the year we have seen the performance stabilise, client retention rates are back to the level we were targeting and the claims ratio is doing exactly what it needed to.
”We value it and consider it a key component of our North American plans going forward.”
Reporting its results for the half year ended 30 June 2014, QBE Group reported an 18% drop in net profit after tax to AUD$420m (USD$392m), down from AUD$511.5m (USD$477m) due to prior accident year claims reserve strengthening of AUD$181.2m (USD$169m) in Latin America. QBE also puts the drastic fall to higher than expected large individual risk claims which contributed to a large individual risk and catastrophe claims charge of around 10% if net earned premium and an adverse discount rate impact of $126m (USD$118m), excluding the impact of increased discount rates in Argentina.
Cash profit also fell from AUD$632m (USD$590m) in the 1H13 to AUD$446m (USD$416m). Underwriting profit dropped from AUD$568m (USD$530m) to $261m (USD$244m); insurance profit fell from AUD$847m (USD$790m) to AUD$568.4m (USD$530m), and the combined operation ratio deteriorated from 92.8% to 96.5%.
Turning to the Australian and New Zealand operations, gross written premium fell 10% to AUD$2.5bn (USD $2.3bn), net earned premium also fell 10% to AUD$1.9bn (USD$1.8bn) and the insurance profit fell 3% to AUD$373m (USD$348m); whereas the underwriting result jumped 17% to AUD$262m (USD$245m).
QBE forecasts 2014 full year GWP of AUD$5bn (USD$4.7bn) for the Australian and New Zealand operations and premium growth of 2% to 3%.
QBE said: “Virtually all major lines of business [in the Australian and New Zealand operations] are profitable and delivered results in line with expectations, despite lower discount rates, particularly for long tail portfolios.”
It went on to say that it remains focused on “retaining high quality business at profitable rates” and that during the first half of the year, it developed “new and targeted sales initiatives designed to maximise retention and deliver profitable new business across various products and sectors”.
“These initiatives are already delivering new and promising business opportunities, and will continue to be developed and implemented in the second half.”
QBE said the global shared services centre (GSSC) in the Philippines is “meeting expectations in the delivery of both efficiency gains and improved service, with further incremental benefits expected as the GSSC matures”.
The figures were converted from US dollars to Australian dollars using XE.com on 19 August 2014.
