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QBE Jumps on Premiums, North American Unit Outlook: Sydney Mover

QBE Insurance Headquarters
The QBE Insurance Group Ltd. logo is displayed at the company's headquarters in Sydney. Photographer: Ian Waldie/Bloomberg

QBE Insurance Group Ltd., Australia’s second-largest insurer by market value, climbed to its highest level in more than two months on plans to increase premium rates and bring its North American unit back to profit this year.

Shares in the insurer rose 5.3 percent to A$12.27 in Sydney, the highest close since Dec. 5. Premium rates will increase 2.5 percent in 2014, the insurer said. It is targeting a “significant” margin improvement over three years at its North American unit, which dragged on the company’s results last year, it added.

QBE Chief Executive Officer John Neal, who took over in August 2012, has embarked upon a full review of the group’s North American business as the insurer struggled with writedowns, lower premiums and provisions for unresolved claims at the unit.

“They have undertaken a lot of remedial work in strengthening provisions and their balance sheet,” David Ellis, a Sydney-based analyst at Morningstar Inc., said by phone. “Assuming these measures give the much required traction; QBE is set for a strong recovery in 2014.”

QBE reported a loss of $254 million in 2013, in line with its Dec. 9 prediction of a $250 million shortfall.

‘Flagging Gently’

“The North American business will return to profit in 2014,” QBE Chief Executive John Neal said during a conference call in Sydney. “What I am flagging gently is for the business to return to the levels of profitability we are looking for universally across QBE’s business that might take another 12 months through to 2015.”

The insurer announced Dec. 9 writedowns for the unit, including a $600 million goodwill impairment.

QBE expects an underlying insurance profit margin of around 10 percent this year after a margin of 10.6 percent in 2013 and gross written premium to be $16.8 billion to $17.3 billion compared with $18 billion in 2013.

The insurer announced a final dividend of 12 Australian cents compared with the mean estimate of 13 Australian cents. QBE has 1.59 times the minimum regulatory capital, it said in today’s statement.

The loss in 2013 compared with a net income of $761 million a year earlier and was QBE’s first shortfall since 2001 when the insurer incurred a net cost of A$252 million ($228 million) from the Sept. 11 terrorist attacks in the U.S.

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