QBE reports Q4 cat loss & hurricane Maria adverse development of $130m

Australian insurance group QBE has reported that its fourth quarter catastrophe losses and adverse development from losses due to hurricane Maria are set to cost the firm $130 million, leading the insurer to expect an after tax loss for the fiscal year of $1.2 billion.

QBE already reported last October that it had exhausted and gone beyond its catastrophe aggregate reinsurance coverage, meaning that a decent proportion of its Q4 losses go straight to the bottom line.

The insurer said that “significant 4Q17 catastrophe activity” including the California wildfires, December severe storms and hail in Australia, and the worsening of its loss expectations for hurricane Maria, all contributed to the $130 million catastrophe loss in Q4.

This has driven its fiscal year 2017 combined ratio up by more than 1%, relative to previous expectations and QBE now expects to report a combined ratio of 104%.

The catastrophes of 2017 hit QBE hard, in its insurance and reinsurance operations, as well as its own captive reinsurer Equator Re.

QBE was also hit by weather-related attritional claims in North America during the fourth quarter, the insurer said.

Additionally, QBE said that the catastrophe claims would result in an additional tax burden, as “significant catastrophe claims in Equator Re and our North American Operations (where already significant deferred tax assets preclude recognition of further tax losses), have distorted the Group’s effective tax rate such that the Group will recognise a material tax expense despite incurring a pre-tax loss.”

Having eaten through a large amount of reinsurance in the 2017 fiscal year QBE may see the benefit in a larger reinsurance purchase for 2018.

QBE also has private ILS and collateralized reinsurance arrangements in place and so there will be the potential for some impact to these, we’d imagine.

It’s also interesting to see QBE increasing loss provisions for hurricane Maria, as it could signal some other re/insurers will do so in the coming weeks as well.