QBE Insurance Group: Best result in a long time

About the author:

Richard Coles
Author name:
By Richard Coles
Job title:
Senior Analyst
Date posted:
13 August 2021, 8:00 AM
Sectors Covered:
Insurance, Diversified Financials

  • QBE Insurance Group’s (ASX:QBE) 1H21 NPAT (US$441m) was comfortably ahead of Factset consensus (US$316m), with the 1H21 DPS (A11cps) also above expectations (8cps).
  • Overall, we saw this as a good result, with very strong top-line growth (+20% constant currency), It was QBE’s best combined ratio in almost a decade (93.3%), and there was no real negative news.
  • We lift F21F/FY22F EPS by 2%-3% on higher top-line and insurance margin (IM) forecasts. Our PT rises to (login to view) on our earnings changes and valuation roll forward.
  • With strong rate increases still flowing through QBE’s insurance book, and further cost-out benefits to come, we expect QBE’s earnings profile to improve strongly over the next few years. Maintain ADD.

A solid result overall

QBE’s 1H21 NPAT (US$441m) was comfortably ahead of Factset consensus (US$316m), with the 1H21 DPS (A11cps) also above expectations (8cps). Overall the result delivered very strong top-line growth (20% on pcp, constant currency basis) with improving underlying profitability.

We thought negatives were hard to find, with broad outlook commentary pointing to likely further margin improvement from here and continuing strong rate increases, with a 13% expense ratio (currently 13.7%) the target by FY23.

The good

1H21 GWP (US$10.2bn) grew by 20% on pcp (on a constant currency basis) with management noting 7% volume growth and group wide average rate increases of 9.7%. Management noted strong rate growth continued in all products and regions.

The reported combined ratio (93.3%) was down on pcp (97.4%) and was QBE’s best performance in almost a decade. The group attritional claims ratio (ACR, 43.7%) declined 1.8% on FY20, with management believing it is reasonable to anticipate further ACR improvement given strong current rate increases.

QBE saw positive prior year development of 1.1% of NEP (versus 2.2% of adverse development in pcp), with modest positive development seen in all divisions.

The group expense ratio (13.7%) was down on the pcp (14.3%) reflecting cost control and operating leverage as a result of strong premium growth.

QBE remains confident the A$655m COVID provision recognised in 2020 remains sufficient and that the A$130m of COVID claims expected to be incurred in FY21 may prove excessive.

Some smaller areas of weakness

Catastrophe claims of US$462m were higher than 1H21 allowances (US$310m) impacted by events like Winter Storm Uri in Texas.

The Australia business ACR (49.6%) was relatively flat on the pcp (49.3%).

Management was cautious on the outlook for claims inflation, noting some temporary signs of inflation in short tail classes due to supply shortages and increased labour costs.

Guidance for a 95% crop COR might prove optimistic, given drought conditions prevalent in certain states.

While rate increases remain robust, management noted some signs that rate increases are moderating in certain loss affected insurance classes, e.g. financial lines, which have already seen strong rates increases.

Changes to forecasts

We lift F21F/FY22F EPS by 2%-3% on higher top-line and IM forecasts. Our PT rises to (login to view) on our earnings changes and valuation roll forward.

Investment view

With strong rate increases still flowing through QBE’s insurance book, and further cost-out benefits to come, we expect QBE’s earnings profile to improve strongly over the next few years.

The stock also has a robust balance sheet and remains relatively inexpensive overall, trading on ~15x FY22F PE. ADD maintained.

Find out more

Download full research note

You can find further detailed analysis of company results this reporting season by browsing our reporting season tag, and view a full list of upcoming results on our Reporting Season Calendar.

If you would like access or more information, please contact your adviser or nearest Morgans office.

Request a call  Find local branch

Need access to our research?

You are also welcome to start a two-week trial of our online platform, which provides access to detailed market analysis and insights, provided by our award-winning research team

Create trial account 

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

  • Print this page
  • Copy Link