QBE CEO John Neal has expressed disappointment after the group reported a 37% drop in net profit for the six months to June 30.

The $US477 million ($527.98 million) result, on gross written premium (GWP) of $US9.45 billion ($10.46 billion), rounds out a tough first year in the job for Mr Neal.

The insurance profit margin of 10.8% was below market expectations. The result was dragged down by “performance issues” in QBE’s US lenders mortgage insurance (LMI) business and prior-year claims development of $US178 million ($197.02 million) – split between a blowout in the discontinued US program business, workers’ compensation claims in Argentina and medical malpractice claims in Italy.

The Australia and New Zealand business was once again a standout, with GWP of $US2.51 billion ($2.78 billion), an insurance profit margin of 17.3% and a combined operating ratio of 89.9%.

The US LMI segment, largely comprising the Balboa business QBE bought from Bank of America in 2011, was affected by the bank’s decision to sell one-third of its loans portfolio during the six months, leading to reduced business volume for QBE and a $US40 million ($44.27 million) acceleration in claims associated with that part of the book.

The LMI business also came under pressure from fines, legal fees and lower premium rates, which are set in advance through negotiations with US state insurance commissioners.

Mr Neal says QBE plans to change its LMI product’s design and structure and forge relationships with new lenders, but he declined to give further details.

“It’s been a challenging six months for us in North America,” he said, as he cut QBE’s full-year US GWP target by $US600 million ($664.12 million) to $US5.9 billion ($6.53 billion).

Mr Neal says QBE’s US property and casualty business is “improving”, but he wants to see a better attritional claims ratio before letting the operation grow.

Mr Neal has set a full-year insurance profit margin target of 11%. He says QBE’s underlying performance is “at or ahead of expectations”, while the full-year combined operating ratio target of 92% would see it deliver a “top-quartile” underwriting performance globally.