QBE Insurance Group Ltd. (QBE), Australia’s biggest insurer, fell the most in 10 months after saying claims from U.S. superstorm Sandy will push its insurance margin lower and dent full-year profit.
The company’s insurance profit margin will drop to around 8 percent this year, down from an August forecast for better than 12 percent, as losses from Sandy total $350 million to $450 million, it said in a statement today. Profit in the year to Dec. 31 will be in excess of $1 billion, it said. The shares fell 8.3 percent to A$11.80 at the close of trading in Sydney, the most since Jan. 12.
“QBE was always going to stand to lose the most of the Australian insurers from Hurricane Sandy given their large exposure in the U.S. overall,” Ben Le Brun, market analyst at OptionsXpress in Sydney, said in an e-mail. “I certainly expect that the fallout from Hurricane Sandy will eat into QBE’s profitability for this year.”
Property-casualty insurers may face claims of as much as $20 billion from Sandy, the biggest Atlantic storm in history, according to an estimate from catastrophe risk modeler Eqecat Inc. For QBE, the downgrade comes at a time when it is recovering from record payouts generated in 2011 after earthquakes in Japan and New Zealand, and Australia’s costliest floods ever.
“It is frustrating to be reporting disappointing news at a time when the vast majority of our ongoing businesses are performing in line with, or better than, expectations,” John Neal, chief executive officer of QBE, said in the statement. “Superstorm Sandy will prove to have been one of the most devastating storms in recent U.S. history and the recorded loss of life is incredibly distressing.”
Ratings company Standard & Poor’s lowered its outlook for QBE to “negative” from “stable” following the company’s statement.
The Sydney-based company said it plans to raise $500 million and has received commitments for a subordinated convertible debt issue.
Five-year credit-default swaps on QBE’s debt surged 38 basis points to 262.5, set for the biggest increase since Jan. 12 and the highest close since Sept. 6, Citigroup Inc. and CMA data show.
QBE increased its allowance for risk and catastrophe claims to 12 percent of net earned premium for the year, from 10.5 percent earlier. This includes allowances for higher-than- expected claims related to drought losses in its U.S. crop business; individual risk and catastrophe claims of about $600 million, $100 million higher than earlier expected; and an allowance for additional losses of $357 million for November and December, it said.
The group will also hold a further $125 million to protect against uncertainties in its estimates of outstanding claim provisions, it said.
“The higher volume of large individual and catastrophe claims revealed generally and the large general increases in provisioning around prior year North American claims and risk margins have surprised the market,” Angus Gluskie, managing director at White Funds Management, which oversees more than $350 million, said in an e-mail. “Most of the adverse developments relate to the U.S., so there are no immediate implications for Australian insurers.”
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