Group chief executive Neal “disappointed” as North American woes hit result

QBE’s European operations reported an insurance profit of $192m (£115.4m) in 2013, down 41% n the $327m it reported in 2012.

The insurer’s European division also revealed it had embarked on a cost-cutting ‘operational transformation programme’ in the first quarter of 2014.

Meanwhile, the QBE group as a whole made a loss after tax of $254m (2012: profit of $761m) thanks to previously-announced write-downs at its North American operations.

European operations

As well as suffering a decline in insurance profit (the sum of a company’s underwriting and investment results), the European operations’ combined operating ratio (COR) increased by 1.5 percentage points to 96.1% (2012: 94.6%).

The insurance profit margin – the combined underwriting and investment results as a percentage of gross written premium – fell to 5.3 in 2013 from 9.8% in 2012.

The European operations also had to strengthen reserves by $27m in 2013 – similar amount to 2012. This was caused by deterioration in its Italian and Spanish medical malpractice portfolios as well as UK industrial deafness claims.

However, gross written premium increased 3% to $5.2bn (2012: $5.1bn). Also, the company said non-life business in the UK had “performed well”, and that rates in its UK retail business remained stable “with less rate pressure”.

QBE European operations chief executive Richard Pryce said: “We achieved good premium growth in 2013 from new business initiatives, despite a subdued premium rate environment and tough competition.

“In a year of lower catastrophe losses, the result was held back by a higher than normal level of large individual risk claims, legacy issues from some of our long tail portfolios and higher commissions.”

Commission pressure

QBE European operations’ commission ratio increased by 1.1 points to 18.1% (2012: 17%), which the company attributed to a change in business mix, mainly the company’s expansion into higher-commission-paying property business.

The company said: “We are generally seeing increased pressure for higher levels of commission in our insurance classes of business.

The expense ratio increased by 0.8 points to 16% (2012: 15.2%) because of several one off items, including changes to indirect tax recovery percentages in certain countries, some property exit costs and reduced profit commission income on Lloyd’s Syndicate 386.

Transformation programme

QBE also revealed that it had embarked on an operational transformation programme of its European operations in the first quarter of 2014. This followed a review of the division’s operational platform in the second half of 2013.

This is part of a group-wide operational transformation programme that started at the beginning of 2013, spearheaded by QBE’s Australian and New Zealand operations. The programme aims to trim $250m from QBE’s group annual costs by the end of 2015.

Group result

As well as making a net loss for 2013, the QBE group’s COR deteriorated by 0.7 points to 97.8% in 2013 (2012: 97.1%).

While the drop was small, the COR was “well short” of its original 92% target. The company said it missed the COR target mainly because of reserve strengthening in its North American operations.

QBE group chief executive John Neal said: “Although we are disappointed with our 2013 underwriting result, we have taken the necessary steps to deal with underperforming portfolios, completed an extensive program of management change and succession across the group and are well on the way to implementing transformation programs, all of which will provide a solid base for our business in 2014.”