QBE’s first-half profit fell 18% to $US392 million ($365 million), in line with the company’s recent market warning, due mainly to claims reserve strengthening related to the Argentine workers’ compensation portfolio.

Group CEO John Neal says the company is “extremely disappointed” by the Latin American problems but has acted decisively to put them behind it. “Other than in Latin America, the group’s divisional results are solid and in line with our internal plans.”

Gross written premium (GWP) fell 10% to $US8.49 billion ($9.11 billion) mainly on weakness in Europe and North America, while the combined operating ratio deteriorated to 96.5% from 92.8% in the corresponding period last year.

Mr Neal says the drop in GWP reflects decisions to exit some non-core and underperforming areas, while market conditions have been more competitive than anticipated.

Premium rate increases on renewed business averaged 0.7% in the half, compared with a rise of about 5% in the corresponding period last year and an original full-year expectation of 2.5%.

North American operations posted an insurance loss of $US7 million ($7.5 million), while the European result gained 3% to $US111 million ($119 million).

Australia and New Zealand insurance earnings fell 3% to $US348 million ($374 million). The company warns rates will remain under pressure, with full-year local currency premium growth forecast at 2-3%.

Last week QBE completed a $650 million institution share placement, and it expects to raise about $160 million through a retail offer next month to Australian and New Zealand shareholders.

The offers are part of a wider capital program that includes the spin-off of the Australian lenders’ mortgage insurance business and the sale of agency businesses.

QBE says the capital program will allow it to be less conservative in its investment strategy, and its risk asset exposure will increase to about 15% “over time” from about 2% at the end of last year.

QBE forecasts a full-year GWP of $US16.6-17 billion ($17.8-18.2 billion), a combined operating ratio of 95-96% and an insurance profit margin of 8-9%. Mr Neal says the company’s guidance points to full-year earnings of about $US850 million ($912 million).

Meanwhile, Fitch has affirmed QBE’s long-term issuer default rating at A- and its subsidiaries’ insurer financial strength ratings at A+, with a negative outlook.

The decision reflects the insurer’s improving capital and financial leverage ratios, and its historically strong underwriting performance. This is supported by a comprehensive reinsurance program and low-risk investment portfolio, the ratings agency says.

However, it says these strengths are offset by uncertainty around QBE’s significant level of goodwill. There is also potential for financial flexibility to be constrained due to further impairments, operational underperformance and weak earnings.