In announcing its results for the first-half of 2021, Australia headquartered global re/insurer QBE said that it will consider making additional strategic purchases of reinsurance protection, as it seeks to offset volatility caused by severe weather and catastrophe loss events.
QBE said that while its combined ratio came out at 93.3% for H1 2021, much better than the prior pandemic and loss creep year’s 103.4%, it was not a clean period and catastrophe losses dented QBE’s results.
Having already increased its catastrophe allowance for this year, QBE has gone over budget, with catastrophe losses running 1.6% of premium ahead of plan.
Catastrophe losses for the first-half of 2021 reached $462 million, or 7.0% of net earned premium, up materially from $308 million or 5.5% in the prior period.
The major catastrophe losses that impacted QBE during the period were winter storm Uri in Texas, flooding on the east coast of Australia and Cyclone Seroja in Western Australia.
Despite the catastrophes QBE has reported a $441 million profit for the first-half, far better than the previous years -$712 million loss.
Interim QBE Group CEO, Richard Pryce, commented, “Notwithstanding the heightened level of catastrophes during the half which remain a major issue for the industry, I am very pleased with the improvement in the underwriting result and the strong but targeted premium growth.
“While we continue to benefit from meaningful compound premium rate increases in all our geographies, there are signs that pricing momentum is moderating, particularly in International Markets. Regardless, we will remain vigilant in balancing premium growth and pricing adequacy for an appropriate risk adjusted return on capital, with claims inflation and catastrophe costs key areas of ongoing focus.”
QBE noted that catastrophe rates have been rising, but does not yet feel they are adequate.
The company noted that the, “Elevated level of catastrophe activity is concerning and we continue to view all catastrophe exposure with caution. As we still consider the pricing of catastrophe risk to be merely adequate rather than margin enhancing, we have not increased catastrophe exposure during the half.”
Winter storm Uri alone added 6% to QBE’s combined ratio during the first-half and as a result of this and other severe weather related impacts, QBE’s North America division reported an underwriting loss, with a combined ratio of 100.9%.
New reinsurance expenditure is one way that QBE has been trying to manage down volatility in its results and it appears this is set to continue, as the carrier noted more additions are likely.
In H1 2021, catastrophe claims were above allowance in North America and Australia, two regions where additional reinsurance has been purchased in recent years.
Overall, QBE’s reinsurance expenditure rose 43% to $1.409 billion, up from $983 million in the first half of 2020.
QBE’s core catastrophe reinsurance renewal at January 1st was only $40 million of the additional expense, suggesting the majority has come from its North America and International businesses.
Looking forward, QBE’s CFO Inder Singh explained, “We will consider more strategic reinsurance to enhance returns and further optimise the portfolio, including reducing reserving risk to free up capital for reinvestment in higher margin new business, improving portfolio balance and managing areas experiencing very strong growth.”
Which suggests the reinsurance spending will continue at QBE, as the company seeks to better manage some of the volatility it has experienced in recent years.