Dividend halved as QBE prepares for year or consolidation
The global insurer disappointed investors on Tuesday when it said profits for the first half fell 37 per cent to $US477 million ($520 million), amid weak premium growth and declining investment earnings.
It also cut its final dividend in half to 20¢, after signalling lower payments to investors earlier this year when it slashed its dividend payout ratio.
While parts of the company's sprawling empire performed well, including its Australian interests, its US arm posted another poor result, after being hit by hefty natural disaster claims last year.
Revenue from premiums in the US business fell by 16 per cent compared with a year earlier and insurance profits plunged 31 per cent to $US89 million.
A key reason for the weakness was a decline in its business selling "lender-placed insurance" - which protects banks if borrowers are not adequately insured.
QBE said Bank of America, its biggest client in selling lender-placed insurance, had reduced its loan book by 30 per cent, accounting for about half of the slump in QBE's US revenues.
Chief executive John Neal said that as the US housing market improved, there was less demand for the product.
"As the economy improves, less people find themselves in times of stress and therefore less people are either not renewing insurances or falling into default in their mortgage," Mr Neal said.
QBE also downgraded its revenue forecasts for the US business by $US600 million for the full year but Mr Neal stressed this was a cautious outlook.
In another disappointment for investors, QBE said it had received extra claims totalling $US178 million from previous years.
The group's profit result and dividend was short of analyst expectations and QBE shares dropped 5.5 per cent to $16.10. The dividend, which will be fully franked, will be paid on September 23.
QBE said it was still confident of hitting previous full-year guidance. Since his appointment a year ago, Mr Neal has sought to cut costs across QBE, after years of acquisition-fuelled growth under former CEO Frank O'Halloran. He said it would be a year of "consolidation", a sentiment supported by analysts.
QBE shares have recently done well from market factors, including the falling Australian dollar, but Citi analyst Nigel Pittaway said this rally may have been overdone.
"This result seems to reaffirm our view that full year 2013 is a transitional year for QBE and suggests the recent share price rally driven by macro factors has moved ahead of the underlying fundamentals," Mr Pittaway said in a note.
Despite the weaker profit result, the company maintained its guidance, saying that it expected insurance premiums to increase by an average of 4 per cent to 5 per cent.
Elizabeth Knight —Page 34
Frequently Asked Questions about this Article…
QBE halved its final dividend to 20¢ because first-half profits fell sharply amid weak premium growth and lower investment earnings. Management had signalled smaller payouts earlier in the year when it cut the dividend payout ratio, so the reduced final dividend reflects those weaker results and a more cautious capital allocation approach.
QBE reported first-half profits fell 37% to US$477 million (about $520 million), driven by weaker premium growth, declining investment earnings and underperformance in its US operations.
The US arm was hit by hefty natural disaster claims and a big drop in demand for lender-placed insurance. Premium revenue in the US fell 16% year‑on‑year and insurance profits plunged 31% to US$89 million. QBE also said Bank of America reduced its loan book by about 30%, accounting for roughly half of the slump in US revenues.
Lender-placed insurance protects banks if borrowers aren’t adequately insured. It matters for QBE because a significant portion of its US revenue came from selling this product; as the US housing market improved and banks reduced loan books, demand for lender-placed insurance fell and contributed to QBE’s weaker US results.
QBE shares fell 5.5% to $16.10 after the profit result and dividend announcement came in below analyst expectations. Some analysts cautioned that the recent share price rally may have outpaced the company’s underlying fundamentals.
QBE downgraded its US revenue forecasts by US$600 million for the full year but said it remained confident of hitting previous full‑year guidance for the group. The company maintained an expectation that insurance premiums would increase on average by about 4% to 5%.
Yes. QBE said it received extra claims totalling US$178 million from previous years, which added to the pressure on the group’s profit result.
Since John Neal became CEO a year ago he has focused on cutting costs after a period of acquisition-driven growth under the previous CEO. Calling the year one of 'consolidation' signals a focus on stabilising operations, reducing costs and improving efficiency rather than pursuing aggressive expansion—an approach analysts say is appropriate given the recent results.
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