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FY20 update: QBE (ASX:QBE) shares sink 9%

QBE Insurance Group Ltd (ASX: QBE) shares are currently down 9% after the insurer gave an update for FY20.

QBE FY20 update

The insurer wanted to tell investors about what it is expecting for FY20, including the impact of COVID-19, catastrophe experience, prior accident year claims development and investment income.

The combined operating ratio for the third quarter of FY20 was 102%, reflect a COVID-19 impact of around 4% and continued elevated catastrophe experience. The combined underlying operating ratio was broadly in line with the 93.7% which was reported in the first half of FY20 which included a deterioration in the performance of its ‘Crop’ business in the third quarter.

QBE said that the FY20 result will also be impacted by additional adverse prior accident year claims development and one-off, largely non-cash charges including a North America goodwill and deferred tax asset impairment, as well as IT and real estate related charges.

FY20 net investment income is expected to around $140 million. QBE said this is a material turnaround from the first half loss of $90 million and largely reflects the strong recovery in credit spreads during the second half of FY20 which more than offset the significant widening experienced in March and April 2020.

Having reported a FY20 first half net cash loss of $666 million, QBE now expects to report a FY20 adjusted net cash loss after tax of $780 million. QBE includes the following pre-tax impacts for its result: $470 million of COVID-19 costs, $130 million of elevated catastrophe costs and $360 million of prior accident year claims development. The expected statutory net loss after tax of around $1.5 billion also includes a $520 million non-cash writedown of North America goodwill and deferred tax assets, and around $100 million of IT and real estate related writedowns.

QBE management comments

QBE CEO Richard Pryce said: “While I am very disappointed with the headline statutory loss, I am increasingly confident about the pricing cycle, particularly in the northern hemisphere, and the outlook for the underlying business. Premium rate momentum accelerated in North America and international during 3Q20 and the FY20 attritional claims ratio is expected to improve further from 45.5% reported in the first half of FY20. 

As we move into 2021, my focus remains on ensuring the group takes full advantage of currently favourable market conditions by locking in margin expansion while driving targeted growth in portfolios and regions offering the most profitable new business opportunities.

Our balance sheet remains strong and able to fund expected growth.”

Summary thoughts

2020 has been a difficult year for QBE. Sadly for QBE shareholders, there has been several difficult years over the past decade. For that reason, it doesn’t attract me even after its share price fall.

There are other ASX dividend shares I’d rather buy including Magellan Financial Group Ltd (ASX: MFG) and Brickworks Limited (ASX: BKW).

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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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