QBE has lowered its full-year insurance margin target by 1% due to increasing expenses and falling net earned premiums as a result of its troubled US business and its new focus on dropping unprofitable business.

New Group CEO John Neal says the decision to lower the insurance margin from “greater than 13%” to “greater than 12%” for the full year is “prudent”.

Announcing QBE’s results for the six months to June 30 on Friday – his first day in the top job replacing Frank O’Halloran – Mr Neal said a push from the large global brokers to increase commissions is putting pressure on expenses.

He says QBE’s net earned premium is also being hit by lower premiums from its US crop and lenders’ mortgage insurance (LMI) businesses.

“At this point in the year it pays to be conservative,” he said.

If he is able to outperform the forecast, it may also allow the new CEO to get some runs on the board during his first six months at the helm of the global insurer.

For the first half of 2012, QBE posted an insurance profit margin of 13% – up from 11.2% in the first half last year – on the back of a 26% increase in insurance profit to $US958 million ($919 million).

The group recorded a 13% rise in after-tax profit to $US760 million ($729 million) while Mr Neal says underwriting profit “exceeded expectations” to leap 79% to $US522 million ($501 million), thanks to lower catastrophe losses and better risk selection.

The combined operating ratio (COR) for the first half was 92.9%, an improvement on the 95.7% it posted in the first half last year.

QBE’s large risks and catastrophes allowance came $US181 million ($174 million) under budget for the half, but Mr Neal is wary of the third quarter, which marks the peak of the US hurricane season.

The US – QBE’s largest business – has been a blight on the overall performance, with the COR creeping up six points compared to the first half of 2011, and an insurance profit margin of only 8%. That is less than half the 16.8% posted in the first half last year.

This is attributed to ongoing remediation in the US commercial business taking longer than expected, coupled with the worst drought in 50 years hitting QBE’s crop insurance business. It is forecast to record a breakeven performance for the full year, at best.

Premiums are also falling in QBE’s US LMI business due to regulatory pressures on premiums and an improving US economy resulting in fewer mortgage foreclosures.

See Florida regulator pushes QBE over LMI rates

But there are bright spots in the US business, with Mr Neal reporting traction in commercial rates in the US from the second half of last year, with average rate increases of 13-18% in property lines and 3-8% in casualty lines.

Globally, Mr Neal says QBE has seen average rate increases of 5.3% for the first half, with tightened terms and conditions attributing the equivalent of another 1.2% improvement in rates.