QBE Insurance (QBE) The global insurer released its half-year 2023 profit results, giving details om the positive trends in insurance management and the tailwinds from higher interest rates discussed in the company’s earnings guidance given in July, so there were few surprises in this result. The HNW Portfolios have a 4% weight to QBE.
- Profits up: Net profit after tax up significantly to US$545 million, driven by +13% premium growth over the last year, with the strongest growth coming out of Australia Pac. QBE has been able to retain 82% of its customers as they pass on these higher premiums demonstrates how sticky the insurance business model is, or that QBE’s prices are too low. Cat claims have remained high for QBE for the half with North America continuing to have strong weather storms as well as the flooding in New Zealand earlier this year. ROE 10.1% the best in years for QBE.
- Investment Float: The net return on QBE’s float of $27.4 billion was 4.4% over the half, compared with close to 0% in 1H 2022. Whilst this doesn’t sound very impressive, it netted QBE US$662 million in investment income! In addition to this, QBE exited the first half with a yield of 4.9%, which if maintained provide could see investment return marginally increase and add US$685 million in investment income for the full year.
- Balance sheet remains strong: 1.80x the Regulatory capital minimum set by APRA whilst maintaining a gearing ratio of less than 25%.
- Dividend: Up +55% to $A0.14 per share (10% franked), with management very stingy in our opinion on the dividend payout ratio given their solid capital position.
- Outlook: Management expects to see 10% growth in gross written premiums throughout 2023, return the combined operating ratio to below 95% and an exit investment yield around 5% on their $27.4 billion investment float = $685 million for the second half of 2023.
- Why is the stock down? The stock was down due to the lower dividend payout ratio (35%) than what the market was expecting. However, management cited that they were taking a conservative stance for the dividend this half as the North American hurricane season doesn’t finish until after October and looking to make up the difference in the second half of the year.
Portfolio Strategy: QBE has a diverse class of insurance business lines across Australia, Asia, Europe and America and gives the portfolio exposure to both a falling AUD, rising interest rates and a hardening of insurance pricing globally. This result shows the benefits of the simplification drive over the past five years that has seen QBE jettison exotic businesses such as Argentinian workers comp, Columbian third-party motor, and Ecuadorian crop insurance acquired during QBE’s growth at all costs phase 15 years ago. Despite share price moves QBE trades on an undemanding PE of 10x with a 4.2% yield.
QBE finished down 1% to $15,41; QBE has been a star performer in the portfolio over the past year, up +30% vs the ASX200 +9%.