QBE's profits have again been dragged down by weakness in its US business, after it suffered a shock plunge in demand for a type of mortgage insurance sold via banks.
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.
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