QBE Drops Dividend, Singles Out Climate Change Risks

By Glenn Dyer | More Articles by Glenn Dyer

Insurance giant QBE has warned that climate change poses a material threat to its business and the economy after booking a $300 million hit to revenue due to unusual weather events in the US, Europe, and Australia.

The global insurer and reinsurer yesterday reported a 1% drop in revenue to $22.6 billion for the year to December.

The final franked dividend security paid out 27 cents.

Statutory net after-tax profit jumped 41% to $818 million from $580 million in 2018 after QBE sold off a suite of assets including its insurance operations in Indonesia and the Philippines, Australian livestock-in-transit businesses and personal lines business in North America.

But that was misleading. QBE reported an underwriting loss of $2.98 million compared with an underwriting profit of $714 million in 2018, or a combined operating ratio – which compares claims and other expenses to total premiums, and is a key measure of profitability – of 100%.

That was up from 95.9% in 2018 (a ratio of above 100% indicates the underwriting activity is unprofitable as underwriting losses exceed profits).

In December, QBE announced a profit downgrade in the wake of a wet spring and early summer in North America that saw hail, sleet, frost and snow ruin crops in the midwest and south. That saw the insurer rack up losses in its crop insurance and other rural lines in the US.

QBE’s total cost of large individual risk and catastrophe claims added up to $US1.381 billion for the year, representing 11.9% of net earned premium compared to 9.8% a year ago when the total catastrophe figure was $US1.163 billion.

Large individual risk claims alone were higher than expected at $US955 million.

The higher disaster costs follow a summer of bushfires and unusually wet spring weather which impacted US crop insurance.

QBE chief executive Pat Regan said in a statement with the result that tensions in the global economy from low economic growth and protectionist trade policies were having an impact on the QBE.

But like Suncorp and IAG last week, he singled out climate change as the most pressing issue for the company and the insurance sector generally.

“What we perhaps feel most profoundly though, is the challenge that climate change presents to our customers and indeed the whole economy,” Mr. Regan said.

“Globally, the economic cost from natural disasters have now exceeded the 30-year average for seven of the last 10 years, while the number of extreme weather events globally has tripled since the 1980s.”

QBE said its bottom line was also affected by the British government’s decision to increase the amount paid out to people who are seriously injured in accidents, known as the Ogden discount rate.

In July 2019, the UK government reset the rate’s calculation in a move that is likely to cost the insurance industry hundreds of millions of pounds and could lead to higher motor insurance premiums.

The company’s final dividend will be 27 Australian cents, franked at 30%, down from 28 cents, 60% franked, 12 months earlier.

The total 2019 dividend of 52 A cents is up 4% from 50 cents in 2018. When combined with the $A295 million of shares repurchased through the on-market buyback, the total shareholder payout for the 2019 year was $A976 million broadly in line with the prior year.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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