QBE says catastrophes eat “well into” aggregate reinsurance program

QBE, the Australian headquartered global insurance and reinsurance group, said it expects to fall to a roughly $780m after tax cash loss for the fiscal-year 2020 and that its catastrophe costs have eaten “well into” its aggregate reinsurance program.

QBE said that it expects its full-year results to be hit by around $470m of COVID-19 costs, around $130m of elevated catastrophe costs and around $360m of adverse claims development on prior accident years.

Natural catastrophes and severe weather are a key driver here, alongside the COVID-19 pandemic of course.

QBE expects its fiscal year 2020 catastrophe losses will reach $680m and that doesn’t include ongoing severe weather in Australia in December, or any future events that occur this month.

This is now roughly $130m above QBE’s $550m annual catastrophe allowance, so “well into the Group’s catastrophe aggregate reinsurance program,” the company explained today.

As reinsurance partners again help QBE moderate its losses from catastrophes and severe weather in 2020, firms CFO said today that he expects the company will likely need to buy more reinsurance going forwards.

Alongside larger events, QBE has again been hit by the frequency of smaller catastrophe and severe weather losses in 2020, making its aggregate reinsurance protection vital and suggesting it needs to increase its coverage to provide a more significant buffer for its results.

Catastrophe losses went over plan in the first half, at $308m compared to a budget of $250m.

But second half catastrophes, including severe weather, the US wildfires, the Atlantic hurricane season and the Derecho in the Midwest US, have all served to make H2 over-budget as well, resulting in more recoveries being made on QBE’s catastrophe aggregate reinsurance.

Adverse development has been experienced related to hurricane Irma and Dorian, as well as Japanese typhoons Hagibis and Faxai in the first-half, largely affecting the reinsurance unit QBE Re.

That drove $30m of adverse development, but QBE has also added to its reserves due to social inflation, with a “substantial charge” for US business due to inflationary factors, as well as $40m for E&S reserve strengthening and $40m of adverse development to its aviation portfolio as well.

On the pandemic, QBE is now expecting to recover around $130m from its reinsurance it seems, as its claims ultimate now stands at $600m and the company puts its net incurred at roughly $470m.

As a result, QBE is benefiting from reinsurance support across its business, which has reduced the level of loss suffered in 2020.

QBE Interim Group CEO, Richard Pryce commented, “While I am very disappointed with the headline statutory loss, I am increasingly confident about the pricing cycle, particularly in the northern hemisphere, and the outlook for the underlying business. Premium rate momentum accelerated in North America and International during 3Q20 and the FY20 attritional claims ratio is expected to improve further from 45.5% reported in 1H20.

“As we move into 2021, my focus remains on ensuring the Group takes full advantage of currently favourable market conditions by locking in margin expansion while driving targeted growth in portfolios and regions offering the most profitable new business opportunities.

“Our balance sheet remains strong and able to fund expected growth.”

On top of its $780m estimated adjusted cash loss, QBE also expects goodwill impairment to its North American business, restructuring and IT cost writedowns and other factors to drive its estimated statutory loss for 2020 to as high as $1.5bn.