Catastrophes and the performance of the North American division have driven a weaker first-half QBE insurance operating result, while a surge in investment returns boosted the bottom line. 

The insurance operating result fell to $US95 million ($145 million) compared to $US375 million ($573 million) a year earlier. North America was the weakest division, reporting a combined operating ratio of 106.9% compared to 95.9% in the previous period. The Australia Pacific ratio deteriorated while the International division posted an improved performance. 

Group net profit after tax rose to $US400 million ($611 million) from $US48 million ($73 million) as investment returns provided a tailwind and gross written premium (GWP) gains boosted the top line. 

Group CEO Andrew Horton said the group was reviewing its property portfolio exposures, had simplified the North American business, and remained confident on its outlook. 

“This has been a disappointing half for me in many regards, but I do think we’re making progress on our key initiatives and have good momentum in the business,” he told a results briefing. 

GWP rose 13% to $US12.8 billion ($19.6 billion) supported by group-wide renewal rate increases of 10.2%. In Australia Pacific, renewals were up 11.8% and the retention rate was 88%. 

Catastrophe costs included Cyclone Gabrielle and the North Island flooding in New Zealand, alongside a series of convective storms in North America. The result was also impacted by deterioration in a number of events from last year, such as winter storm Elliott in the US and Australian floods. 

Mr Horton says there’s been a step-change in reinsurance markets, particularly affecting events such as storms and floods, and the company is reviewing its portfolio to ensure it has the right balance on property exposures and has the right tools and responses in place. 

“We’re retaining a much larger chunk of any catastrophe loss before it goes into the reinsurance program than we did, so that means to manage that we needed to look at the insurance exposure we’re taking onto our balance sheet,” he told insuranceNEWS.com.au. 

Group CFO Inder Singh said the Australia Pacific result was disappointing with the combined operating ratio deteriorating to 98.9% from 92.9% following higher-than-planned catastrophe costs and domestic short-term claims inflation that was higher and more persistent than expected. 

The International division reported an improved combined operating ratio of 93.2% compared to 95.4%. 

“Across our key regions, economic inflation appears to be peaking or has peaked, and we are seeing some very early signs to suggest inflation may be moderating in certain short-tail classes,” Mr Singh said. “While this is encouraging, the risk of persistency remains a key focus.” 

The first-half result fell well short of S&P Global Ratings’ full-year expectations half-way mark. The firm has anticipated a $US1.3 billion ($2 billion) full-year net profit. 

“We continue to view the North American operations as a drag on the group's credit profile,” S&P says. “However, the strategy to de-risk and modernise the division is evident, and with ongoing rate strength should flow through to results over the next 12 months.” 

Morningstar analyst Nathan Zaia says while the result was a “massive turnaround” on a year-earlier it was “somewhat underwhelming” with an expected rise in investment income on shareholder and policyholder funds saving the day. 

“Investment income shouldn’t be thought of as a free kick. Insurance is a competitive industry, and premium rate pricing ultimately incorporates an expectation on investment income,” he says in a research note.