QBE is targeting cost savings of $US130 million ($180 million) under a three-year efficiency program announced today, as it pursues profitability gains following a streamlining of the group into three divisions.

The insurer also announced the sale of insurance operations in Puerto Rico, Indonesia and the Philippines and says a reinsurance program placed for next year provides better protection for severe catastrophe years.

“We have now completed our portfolio simplification and that gives us a solid platform to build upon,” Group CEO Pat Regan told an analysts briefing.

The combined operating ratio is expected to improve next year, but an increase in the catastrophes allowance due to the new reinsurance program will create a $US50-$US100 million ($69-$139 million) “P&L headwind”, Mr Regan said.

QBE announced recently that its operations will be grouped under North America, International Markets and Australia Pacific divisions. The company has also simplified through operating in nine fewer countries following divestments in Latin America and Asia.

Mr Regan says about a third of the $US200 million ($278 million) in gross savings from the efficiency program will come from North America, where QBE recently sold a complex personal lines business. The remainder will result from technology and process improvements and areas such as real estate, procurement, reducing use of consultants and travel.

“Our operational efficiency road map doesn’t include any silver bullets but is rather based on many small discrete efficiency enhancement projects,” he said.

The program, which will run through 2021, targets an expense ratio of around 14%, representing an improvement of around 1.5%.

Mr Regan did not detail possible headcount cuts, but says the company could reduce costs through a range of non-staffing changes. QBE plans to consolidate its group head office and the Australian business into a single site “hopefully” in 2020.

“There are a lot of non-people related costs that we are going after,” he told the briefing.

The $US130 million ($180 million) net cost reduction will come off a current expense base of around $US1.8 billion ($2.5 billion).

Around $US95 million ($131.8 million) in one-off restructuring costs will be reported in the results over next year and 2020.

QBE says it has moved to a more conventional reinsurance structure for next year that reduces retentions. The group also benefited from acting early to secure its program, avoiding the market impact of recent catastrophes, Mr Regan says.

The company’s probable maximum loss for an Australian cyclone will fall about 20% for a 1-in-20 year event and 35% for a 1-in-200 year event under the new program, QBE says. For North American hurricanes the declines would be around 20% and 25%.

The reinsurance is set to cost around $US125 million ($173 million) less than the expiring program, but the budgeted net allowance for large individual risk and catastrophe claims will be increased $US200 million ($278 million) to around $US1.4 billion ($1.9 billion) due to more variability around recoveries.