QBE boss John Neal insists the insurer remains on the mend, despite disappointing investors with yet another profit downgrade.
The insurance giant has been a perpetual disappointment to shareholders in recent years, delivering a string of profit downgrades and weak results that have seen QBE’s share price fall from more than $25 to around $10.
It stayed true to form on Tuesday, flagging a $US87 million profit slide on the back of problems with its Latin American business.
The company expects its net profit to fall by about 18 per cent to $US390 million in its half year results in August.
Investors punished QBE, pushing its shares down more than 11 per cent to a seven-month low of $10.57.
But Mr Neal said the rest of QBE, including the troubled US business, was improving and urged shareholders to see the latest announcement as a one-off.
“I think when people get the chance to see the detail that sits behind the results for the half year they will take confidence that the underlying businesses are doing what we set out to achieve this year,” he told AAP.
But Mr Neal said QBE was facing tough competition, particularly in Australia, which meant insurance premiums are likely to more or less flatline in the next six months, after several years of rises.
“You’re certainly not seeing rates reducing on average but our assessment is that by the end of this year pricing will be flat,” he said
That’s great news for customers but less so for QBE, which has also lowered its guidance for group gross written premium, which is effectively the company’s revenue.
QBE expects gross written premium for the first half to fall by about four per cent to $US8.5 billion in response to competition pressures and changes to the US and European businesses.
Meanwhile, QBE expects its group profit margin to be between seven and eight per cent, which is below the 10 per cent the market had expected.
It has also forecast a combined operating ratio, a measure of the difference between the premiums the company receives and the claims it pays out, of between 96 and 97 per cent – above the 93 per cent that had been expected.
The profit downgrade is the result of a $170 million cash injection into the Latin American business.
The extra cash was needed to strengthen claims reserves and cover costs related to its Argentine workers’ compensation business, and higher-than-expected individual risk and catastrophe claims.
Analysts weren’t buying Mr Neal’s assertions about the underlying strength of the business, with 100 Doors managing partner Peter Esho rating QBE as a firm “sell”, given the lack of stability in its earnings and poor recent track record.
“At the end of the day its the track record that earns trust and the track record is not there,” he said.
“It’s not what they say its what they do and what they have been doing is downgrading consistently.”