QBE Expects Growth This Year as Markets Harden

Australia's QBE Insurance Group Ltd. [85434] said this year's business performance is set to generate results with a strategic focus on quality growth for profitability.

The Australian insurance group maintains its focus on bottom line profit, even if this means giving up premium income, said Neil Drabsch, chief financial officer of QBE. The group's growth strategy continues to achieve growth through acquisitions driven by profitability.

Business risk is spread through diversity by product and geographic location, said Drabsch in a financial presentation. Organic growth is pursued in hard markets for QBE, which has operations in 45 countries with a "substantial majority" producing underwriting profits.

The insurer expects net profit will be greater for 2009 than the previous year, when it achieved a rise of 19% to A$1.02 billion (US$895 million) in net profit.

In 2009, gross written premium is expected to increase by more than 15% to A$15.1 billion and insurance profit margin will stand at between 16% and 18%. Premium rates improved across major markets with an average rise of 4% in this first half.

The insurance group's profit margin was 17.5% and gross written premium increased 22% to A$8.1 billion, in the first half of the year ended June 2009. Investment returns posted a 3.3% gross yield. The combined operating ratio stood at 89.3 and is forecast to improve to 88 by the end of this fiscal year.

Drabsch said the company remains cautious under current economic conditions. In general, equity markets are improving and acquisition opportunities are emerging.

Looking ahead, Drabsch said reinsurance rates are expected to harden in spite of flat demand. Premium rates are increasing on average on renewed business.

In the Americas, Drabsch said overall premium rates are "slightly positive" but the market is still soft, particularly in commercial lines. Renewal retention ratios stand in the mid 80% range which is in line with expectations.

Increasing mergers and acquisitions opportunities are emerging across North and South America markets, according to Drabsch. Under the influence of economic recession, there will be no organic growth in premiums, while small to medium enterprises market tends to be more stable.

European operations saw a 4.5% increase in rates for the year to date, according to Drabsch. Rate increases are strongest in the U.S. catastrophe-exposed classes, with 30% rate rises for energy and 10% for reinsurance. Casualty and other rates are expected to increase 5% by the second half of 2010.

QBE generate 37.7% of gross premium income from the Americas, 35.7% from Europe, 21.7% from Australia and 4.9% from Asia-Pacific. Property, motor and product liability are the three largest business classes, accounting for 27%, 20% and 16.1% of gross premium income, respectively.