QBE Drops Most in 9 Months on 37% Profit Fall: Sydney Mover

QBE Insurance Group Ltd. (QBE), Australia’s largest insurer by market value, fell the most in nine months after reporting a 37 percent drop in first-half net income and halving its dividend.

QBE shares closed in Sydney 5.5 percent lower at A$16.10, declining the most since Nov. 13 and cutting gains for the year to 48 percent. Net income fell to $477 million in the six months to June 30 as premiums dropped in North America and it set aside more for unresolved claims. The profit missed a $555 million median estimate of seven analysts surveyed by Bloomberg News.

Chief Executive Officer John Neal, who took over a year ago, is cutting costs by reducing jobs and simplifying processes at the insurer, which has made 135 acquisitions in the past 30 years to expand to 48 countries. He plans to save at least $250 million annually by 2015 through a restructuring program that the company estimates will cost $156 million this year.

“We were expecting less of a decline, and our full year 2013 $1.39 billion net profit forecast is under review,” David Ellis, a Sydney-based analyst at Morningstar Inc. (MORN), said in an e-mailed note. “The restructuring and rebuilding work continues and we remain confident of the long-term turnaround in earnings and dividends.”

Photographer: Ian Waldie/Bloomberg

The QBE Insurance Group Ltd. logo is displayed at the company's headquarters in Sydney. Close

The QBE Insurance Group Ltd. logo is displayed at the company's headquarters in Sydney.

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Photographer: Ian Waldie/Bloomberg

The QBE Insurance Group Ltd. logo is displayed at the company's headquarters in Sydney.

QBE in February wrote off $407 million for amortization and impairments largely on its U.S. operation pushing it to miss its full-year profit forecast, filings show.

Dividend Halves

QBE said its board had taken a “conservative view” in deciding to retain net income as capital, paying out 37 percent of its cash profit in dividends. Its stated policy has been to pay out as much as 50 percent of annual cash profit. The interim dividend of 20 cents per share is down from 40 cents a year earlier.

Gross written premiums from the insurer’s North American operations dropped 16 percent to $2.7 billion. “Plans are under way to rebuild our premium base in the specialist U.S. lender placed insurance business,” Neal said in today’s statement.

Reflecting the weakness in North America, QBE cut its gross written premium target for the year to between $17.5 billion and $18 billion from its earlier forecast of $18.5 billion to $19 billion.

The insurer said today it was “disappointed” in having to set aside $178 million for prior year claims, reflecting additional costs from its businesses in Argentina, Italy and North America, Neal said during a media conference call.

QBE’s latest result also includes a loss of $24 million on its fixed-income investments in the first half compared with a gain of $259 million a year earlier when it revalued its bond portfolio.

The insurer expects an insurance profit margin of 11 percent for the full year after a margin of 10.8 percent in the first half, it said.

To contact the reporter on this story: Narayanan Somasundaram in Sydney at nsomasundara@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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