Australia's biggest insurer QBE Insurance Group has sounded a warning that its after-tax loss for 2017 would be about US$1.2 billion, hit by write-downs and Nat CAT costs.
In its statement yesterday on FY2017 results expectations, QBE also said that it has revised assumptions used to support the carrying value of North American goodwill resulting in an impairment charge of around $700 million. This primarily reflects an increase in the long term combined ratio assumption for North America in its updated business plans. In addition, the reduction in the US corporate tax rate to 21% from 35% has given rise to a $230 million write-down of the carrying value of deferred tax assets in North American Operations.
Payouts in the wake of Hurricane Maria, California’s wildfires and storms in Australia added about $130 million to QBE’s net costs of catastrophes.
In addition, after a detailed review of yearend claims reserves, QBE has strengthened claims provisions by around $110 million, primarily in North America and Asia Pacific (largely Hong Kong workers’ compensation).
The Group now expects to report a FY2017 combined operating ratio (COR) of around 104%, above the target COR range of 100 – 102%. Net investment return is estimated to be around 3.2% or $800 million.
The outlook for 2018 includes a target COR range of 95.0-97.5% and a target net investment return of around 2.5-3.0%.
QBE’s Group CEO, Mr Pat Regan, stated: “This has been a challenging year for QBE, reflecting an unprecedented cost of catastrophes as well as the particularly disappointing deterioration in our emerging markets businesses. Over the last few months, I have been conducting a detailed review of our operations. We have some businesses with strong market positions that are performing well but we also have businesses that are underperforming. We have commenced a comprehensive programme of work to improve both the level and consistency of performance. At the same time, we are conducting a strategic review of our Latin American operations as we look to simplify the Group and reduce risk.”
Details of these plans will be disclosed with the release of the group's 2017 actual financial results, scheduled on 26 February, he said.