Qbe Survives Catastrophes
Sydney Morning Herald
Thursday September 2, 1999
QBE Insurance has emerged from the worst year of catastrophes in its 113-year history to post a better-than-expected 30 per cent increase in net profit to $124 million.
The insurance industry experienced what QBE calls an unprecedented series of natural and man-made disasters during 1998-99 but, unlike most of its competitors, QBE managed to avoid heavy losses in its reinsurance division.
Three local reinsurers GIO Re, Reinsurance Corporation Australia (ReAC) and the failed New Cap Re have lost more than $1.4 billion over the past two years.
Going against the trend, QBE's reinsurance division made an operating profit before abnormals of $44.9 million, down from $95.8 million.
Other divisions also did well, with general insurance making $86.5 million, up from $64.5 million, and the company's Lloyd's business making $12.4 million, up from $5.7 million.
Final dividend was 18.5c, up from 18c, taking full-year dividend to 27c, up from 26c, 50 per cent franked.
The result pushed QBE shares up as much as 27c to $5.87 before they closed up 10c at $5.70.
QBE was involved in 20 major catastrophes during the year which resulted in claims against it totalling $270.9 million. Claims from the Sydney hail storm the most expensive catastrophe in Australia's history totalled $110 million.
By comparison, claims from major catastrophes totalled just $62.6 million in the previous year.
``The year has been one of unprecedented frequency and severity of catastrophes around the world. It's just been quite unbelievable," said QBE chief executive, Mr Frank O'Halloran. ``Our ability to manage our underwriting in a year as difficult as this should not be understated."
The result was held back by $38.8 million in abnormal losses, comprising $17.6 million from complying with the GST and $21.2 million from revaluing investments.
Gross earned premium was $2.6 billion, up 24.5 per cent.
Mr O'Halloran said rising premiums and cost savings from the company's joint venture with Mercantile Mutual should lead to higher earnings over the next two years.
``We're confident that full year earnings next year will improve, but obviously that's subject to not getting another massive year of catastrophes and also subject to the stockmarket not collapsing," he said.
However, franking on dividends in future years will fall below 50 per cent because of higher offshore earnings.
QBE is considering a number of purchases and is talking to two general insurers in Britain, one in eastern Europe and one in Asia.
``We're always on the look-out for major acquisitions but they must be earnings per share positive in year one and we must be able to do due diligence," Mr O'Halloran said, adding that QBE would not pay more than 1.25 times shareholder funds for an insurance company.
Last month an attempt by QBE to buy British insurer Limit for about #500 million ($1.25 billion) failed.
© 1999 Sydney Morning Herald