QBE Insurance (QBE) The global insurer released its full-year 2022 profit results, which were the best and cleanest results the company has presented over the past decade.

Key Points:

  • Profits Up strongly: Insurance profit up +5.2% to US$847 million, driven by +7.9% premium growth over the year, with the strongest growth seen in North America. Additionally, QBE are retaining close to 85% of existing clients, a historically high metric showing customers have minimal cheaper alternatives. Cat claims were slightly higher than expectations due to Hurricane Ian in Florida and flooding in Australia. What was particularly pleasing in this result was the improvement in North America, long the problem child for QBE, with the division swinging from a loss of US$53 million to a profit of US$322 million. Australia Pac was the highlight despite slightly higher claims from floods.
  • Investment Float:  Net return on QBE’s float of US$28 billion was 2%, which sounds small, but this is the first benefit we have seen from the investment portfolio for many years. The market was very pleased to see QBE exit 2022 with a running yield of 4.1% which, if maintained, will provide a US$200-500 million tailwind to QBE’s earnings in 2023!
  • Balance sheet: In good shape, gearing is at 23%, and PCA (probability of capital adequacy) increased to 1.8x APRA’s minimum.
  • Dividend:  Up +30% to A$0.39 per share
  • Why is the stock up? A clean result with all segments benefiting from both higher premiums, disciplined underwriting and rising interest rates, typically with QBE investors don’t see all three of these factors contributing at the same time. Conditions are building for a strong 2023 months for the global insurer, as the current tailwinds are likely to persist in particular higher interest rates.
  • Outlook: Management expects to see 8-10% premium growth for 2023, an investment yield of 4% and an insurance margin of 10%. While claims inflation is impacting short-tail property classes, premiums are growing faster than inflation.

QBE Insurance is held in several of the HNW portfolios and 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.  QBE is managing inflation well by pushing through premium increases (see chart below) and is benefiting from rising rates. QBE trades on a forward PE of 11x with a 6% yield based on a 60% payout ratio.

QBE finished up +7.4% to $14.39, not a bad result with the ASX down 0.86%