QBE flags higher premiums after blowout in natural disaster costs

QBE’s new chief executive Andrew Horton says broad-based inflation and escalating natural disaster costs will continue to drive premiums higher in 2022, as he attempts to make the insurer’s profits less volatile.

QBE shares plunged 8.1 per cent to $11.62 on Friday after full-year profits of $US750 million ($1 billion) and a cautious stance on dividends disappointed investors, who were hoping for a bigger windfall from a surge in premiums.

Although premiums shot up by an average of 9.7 per cent in the year, QBE also increased its catastrophe budget sharply after a blowout in claims from wild weather, including winter storms in the US and widespread storm and flooding damage in Australia. The company also increased reserves as it grapples with how inflation may affect future payouts.

Mr Horton, delivering his first results as QBE CEO, said the cost of disaster claims continued to surprise the global insurance sector, and this would feed into higher premiums.

“The losses still seem to be outrunning the industry. In other words, we keep being surprised by the overall value of the losses, and pricing is still catching up, which gives more momentum to catastrophe exposed business pricing in 2022,” Mr Horton said in an interview.

The profit compared with last year’s $US1.5 billion loss, but was significantly weaker than market expectations.

Allan Gray portfolio manager Simon Mawhinney said all insurers were dealing with higher disaster costs, but QBE appeared to be taking on more reserves for past claims than its rivals. He said insurers such as QBE had been receiving higher premiums for years, and investors had expected a bigger increase in its profits.

“There was a reasonable expectation that an amount of that would flow down into the bottom line, and that has not happened to the degree that we all expected,” Mr Mawhinney said.

Aside from the surge in natural disaster costs, QBE also said it would target a lower dividend payout ratio in the future. Retaining more capital would support its growth plans, the company said. It declared a final dividend of 19 Australian cents a share, to be franked at 10 per cent and paid on April 12.