Incoming QBE Group CEO John Neal has signalled a leaner and meaner company with an increased focus on containing expenses when he takes over the reins of Australia’s largest insurer from Frank O’Halloran on August 17.

Mr Neal told investors at QBE’s AGM that QBE’s “world-beating reputation for active management of the combined operating ratio (COR)” will be complemented by “extra effort on the expense side of the COR”.

He says the company has already “identified $US50 million ($48 million) of run-rate savings to our expenses in 2012 and we expect this number to increase to $US200 million ($192 million) in 2014”.

He also flagged a continuation of the strategy of growth by acquisition implemented by Mr O’Halloran, saying that the company will “remain ruthless in our decision-making on businesses and investments which do not meet our high hurdle rate and strict return on capital criteria”.

It will continue to target a minimum return on allocated capital of 15% per annum for acquisitions after integration synergies are realised.

Mr O’Halloran told investors the company is on track to meet the 2012 COR target of less than 90% and insurance profit margin target of 13% or better it outlined in January, due to a “superb” first quarter featuring better than expected overall premium increases and low catastrophe claims.

QBE had forecast overall premium rate increases of 5% on renewed business for 2012, but Mr O’Halloran says the company now expects overall average premium rate increases in excess of 7%.

First-quarter large risk and catastrophe claims are estimated to be around 1% of 2012 targeted full- year net earned premium, around $US700 million ($674 million) lower than the first quarter of last year, Mr O’Halloran told the meeting.

Mr Neal said the changes implemented at QBE following the 2011 catastrophes include a reduction in exposures in catastrophe-prone areas, increases in premium rates and deductibles and a restructured reinsurance program offering increased protection at a lower cost than many of its peers.

Regardless of these changes, the company has taken last year’s disasters into account when planning for the current year, assuming as much as 85% of the 2011 catastrophe cost could be repeated in 2012.

Large individual risk and catastrophe claims cost the company 15.3% of net earned premium in 2011 and as a consequence it has set a large risk and catastrophe allowance of 10-11% of net earned premium for 2012.

Mr Neal says this will be improved by up to 3% as a result of the business changes QBE has implemented.

The group is forecasting 3% premium growth for 2012 to $US18.7 billion ($18 billion) at group level while the Australian business is expected to record gross written premium growth of 7% to around $4.6 billion.