Struggle through soft market

A major insurer has experienced a 7% drop in net profit after struggling through what it labelled the toughest market in memory, while strong results for a separate network tell a different story.

QBE Group Chairman Marston Becker says the business had performed well to meet its promises in a challenging climate.

“I think I can say without a doubt that this is the toughest marketplace I can remember,” Becker says.

Becker adds that increasing globalisation has brought new capital to the market, while at the same time investment returns remain well below historic levels.

“To remain profitable insurers have no option but to focus their efforts on high-quality underwriting, efficiency and cost control,” he says.

QBE Insurance Group’s net profit after tax for the 12 months to 31 December came in at $US687 million, down from $US742 million a year earlier, the company announced in its half-year results.

However, the international insurer did raise its dividend to AUD30 cents per share, and its adjusted net profit after tax rose 1% on the previous year.

Cash profit after tax, which drives QBE’s dividend payments, was up 21% on a constant currency basis.

Fellow insurer IAG similarly labelled the market conditions as competitive, with its first-half insurance profit falling 12% to $610 million from $693 million in the previous half-year period.

Net profit after tax dipped to $466 million, down from $579 million, yet gross written premium came in roughly where the company anticipated at $5.5 billion, down from $5.6 billion for the first half of 2015.

“We feel really good about what we’ve been able to achieve in a fairly difficult environment,” IAG CEO and Managing Director Peter Harmer says.

“These numbers reflect the sound, prudent business with great customer franchises.”

IAG also announced an innovative reinsurance transaction with Berkshire Hathaway to mitigate the group’s exposure to the Canterbury earthquakes and asbestos liabilities.

“The asbestos portfolio largely relates to public and product liability, as well as workers compensation risks that were written by CGU in the 1970s and 1980s,” Harmer says.

“The reinsurance put in place for this portfolio protects us against further adverse developments, while allowing us to release a substantial level of claims reserves.”

The company also purchased an adverse development cover for the February 2011 Canterbury earthquake event in New Zealand, which provides NZ$600 million of protection above NZ$4.4 billion.

Meanwhile, Steadfast have heralded a change in market, with the gross written premium placed by the network swinging up from $2.2 billion to $2.6 billion.

Managing Director and CEO Robert Kelly says the strong performance, despite difficult market conditions, is a result of diversification in business and customer base.

“We continue to deliver strong earnings growth despite soft market conditions which shows the resilience and diversification of our business and our primarily SME customer base,” he says.

Kelly says that recent acquisitions have paid off and that the industry can expect more of the same as the company heads abroad.

“The acquisitions made in FY15 are performing ahead of expectations, in particular the Calliden and QBE underwriting agencies,” Kelly says.

“Over the past six months, acquisitions overall have generated synergies of $1.5 million before tax. We expect further synergies to arise as our agencies expand their presence through the broker channel and into the new markets of New Zealand and Asia.

“Our strong pipeline of acquisition opportunities in the general intermediary market in Australia continues unabated and we remain disciplined in our due diligence process.”