Insurer Qbe's Shares Hit Eight Year Low

Shares in QBE Insurance (ASX:QBE) have plummeted to eight year lows after the company issued a surprise profit downgrade due to a record level of claims from natural disasters.

The insurer expects its profit after tax for calendar 2011 to be down by between 40 per cent to 50 per cent from 2010's $US1.28 billion.

Analysts had been forecasting a rise in annual profit.

The update came after QBE assessed the impact of recent catastrophes in Australia and around the world, such as floods in Thailand, bushfires in Western Australia and Victoria's Christmas Day storms.

QBE expects its insurance profit margin in the year to December 31 to be between 7.0 and 7.5 per cent, down from the original forecast of at least 11 per cent.

Dividends will be significantly reduced, with QBE's dividend for 2011 expected to drop to 25 cents per share from 66 cents per share from the same period in 2010.

That would take total dividends for 2011 to 87 cents, down from $1.28 in 2010.

QBE shares dropped by as much as 30 per cent because of the profit downgrade.

At 1408 AEDT they had recovered slightly, but remained $2.24 weaker, down 17.2 per cent, at $10.77.

That was their lowest point since early 2004.

"While catastrophes in the second half of 2011 have attracted fewer headlines than those earlier in the year, the frequency of events continued at an unprecedented level," chief executive Frank O'Halloran said in a statement.

In the United States, where QBE is a major insurer, Hurricane Irene, tornadoes, wildfires, hail, flood, wind and snow storms all resulted in a large number of claims.

"Our US crop insurance business produced a below average underwriting profit due to the severe hail and flood claims," Mr O'Halloran said.

Bushfires in Western Australia, storms in Melbourne, floods and riots in Europe and floods in Thailand also sparked huge numbers of claims.

QBE has targeted an underlying insurance profit margin of about 15 per cent for 2012, with increases in premiums, new reinsurance protections and other changes to its business expected to deliver an improved financial performance.

"We have made a number of changes to lessen the impact of a continuation of this heightened level of catastrophes going forward," Mr O'Halloran said.

"These include substantially increased premium rates for property classes of business, higher deductibles, the purchase of more reinsurance for a frequency of catastrophes and reducing exposures in some areas."

New reinsurance protections have been finalised, for an expected increase of about five per cent in cost from the previous year, QBE said.