QBE CEO John Neal moved quickly last week to begin a massive operation designed to turn around the group’s lagging performance.

Central to his efforts is the group’s US business, which Mr Neal referred to last week as QBE’s “problem child”. 

An expert source told insuranceNEWS.com.au last week that it will take up to five years to turn around the group’s performance, with operational rationalisations, exits from non-performing markets and a change in focus away from acquisitions to efficiency the dominant priorities.

These sentiments are echoed by other leading executives in the Australian insurance market, as well as Merrill Lynch insurance analyst Andrew Kearnan, who last week forecast that the turnaround would be “protracted”. 

The North American division of QBE is the main drag on current operations representing 45% of its income but just 26% of the group’s 2012 insurance profit, with gross written premium dropping by $US1 billion ($980 million) and the combined operating ratio blowing out to 106.8% for the year to December 31, 2012.

QBE North America President and CEO John Rumpler admitted the benefits from hardening pricing in the US were displaced by the US drought affecting the crop insurance result, Superstorm Sandy adding a $US117 million ($114.63 million) hit and reduced revenue from its lender-placed homeowners insurance unit with pricing adjustments taking place in that market.

But most indicative of the underlying trouble within the business are the “prior-year portfolio adjustments” and “declines in business stemming from portfolio improvement initiatives”. 

Mr Rumpler has paid the price for the poor performance, being dumped last week in favour of outsider David Duclos, a former CEO of insurance operations at XL, who will join the company on April 1.

As recently as last August, current QBE CEO John Neal was singing the praises of his predecessor Frank O’Halloran, saying at the insurer’s 2012 half-year results announcement: “[His] vision is our vision, and the culture he has embedded in the business is the culture we follow today”.

But last week Mr Neal was singing an entirely different song, reporting an amortisation charge of $US407 million ($398.75 million), largely related to goodwill writedowns on recent acquisitions, putting the idea of future acquisitions on hold, taking a broom to Mr O’Halloran’s remaining senior management team and speaking of a cultural shift required within the company to create an “insurer and reinsurer that thinks and acts as one company”.

Mr Kearnan describes QBE’s transition plan – which involves cost-cutting, refocusing on core businesses and strengthening the company’s balance sheet – as “credible”, with its “new leadership focused on bringing QBE together structurally and culturally post decades of acquisition-based growth”.

But the hard work is far from over with many analysts predicting further goodwill writedowns against past acquisitions to come, pressure from ratings agencies with both Standard & Poor’s and AM Best maintaining QBE on negative ratings watch and limited top-line growth as the company focuses its efforts on getting its house in order.