Australia's largest global insurer QBE has warned that its profits will see "headwinds" of around $50m-$100m in 2019. Nevertheless, the company remains confident of achieving an improved combined operating ratio and higher overall profitability in 2019 compared with 2018, underpinned by the premium rate increases, expected ongoing improvement in the Group's attritional claims ratio and the recently commenced efficiency programme.
In a market update, QBE says it has fully placed its 2019 reinsurance programme and announced a three-year operational efficiency programme.
The recently finalised 2019 reinsurance programme is expected to save around $125m in reinsurance costs; however, this will be more than offset by an increase in the budgeted allowance for large individual risk and catastrophe claims to around $1.4bn, up from around $1.2bn currently, given greater variability around reinsurance recoveries.
The new reinsurance scheme is structured to better suit the Group’s simplified portfolio and improving underwriting risk profile. Key features of the programme include:
- significantly reduced catastrophe retention;
- greatly increased protection against catastrophe severity;
- protection against frequency of medium-sized catastrophe
- significantly reduced large individual risk claim retention;
- improved protection against large individual risk claim severity; and
- increased quota share protection to further reduce claims volatility.
The Group will work to make its operations more effective and streamlined, consolidating technology tools, reducing IT run costs and re-engineering and automating processes. Key features of the Group’s 2019-2021 operational efficiency programme include:
- more than $200m in gross cost savings by 2021 before underlying inflation and further investment in the Brilliant Basics programme (revolving around better pricing, risk selection and claims management), technology and digitisation;
- around $130m net reduction in expenses by 2021 from around $1.8bn currently;
- targeting an expense ratio of around 14% by 2021 representing an improvement of around 1.5%, inclusive of very modest and selective premium growth; and
- around $95m of restructuring costs to be incurred over 2019-2020.
QBE also says it has completed the Group’s portfolio simplification agenda with the sale of its insurance operations in Puerto Rico, Indonesia and the Philippines. The sale is subject to regulatory approval. The group has already sold its Thailand business and exited the Latin American market with sale of its operations in Argentina, Brazil, Colombia, Ecuador and Mexico.