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QBE (ASX:QBE) shares rise on FY20 update

The QBE (ASX: QBE) share price is currently up around 2% after announcing an FY20 update to the market.

What is QBE?

QBE Insurance Group Ltd is Australia’s largest global insurer, it operates in 31 countries and is one of the top 20 global insurance and reinsurance companies. QBE has been operating since 1886 and got its name when the North Queensland Insurance Company and Bankers’ and Traders’ Insurance Company (both set up by James Burns and Robert Philp) merged with The Equitable Probate and General Insurance Company.

QBE’s FY20 update

The insurer has given an update ahead of its interim result next month.

During the half the renewal rate increases averaged around 8.7% compared to 4.7% last year. Premium rate momentum in North America and ‘International’ improved through the half – the June 2020 quarter saw increases of 10.4% and 14.2% respectively, contributing to a group-wide renewal rate increased of 10.1% in the second quarter following an increase of 7.3% in the first quarter.

On a constant currency basis, and adjusting for asset sales completed in 2019, gross written premiums grew by around 10% in the half.

QBE now expects to report a combined operating ratio of around 104% which reflects COVID-19 impacts of approximately $335 million, adverse catastrophe experience of around $60 million and adverse prior accident year claims development of around $120 million. Excluding COVID-19, the combined operating ratio is expected to be around 98%.

The COVID-19 underwriting impact includes $150 million of net incurred claims and $115 million of additional risk margin.

QBE estimates total COVID-19 related costs to be around $600 million, including $265 million of potential further net claims.

The company expects a first half statutory loss of around $750 million, largely due to COVID-19.

Summary

QBE can’t seem to catch a break. After years of struggle, COVID-19 will severely hit its upcoming result. But the underlying numbers are promising if COVID-19 can be halted. I’m not a buyer though, I’d rather go for shares with much more growth potential.

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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