QBE Insurance has shocked investors yet again with another profit downgrade less than a month before the release of its half-year results, this time on the back of a poorer-than-expected performance in its Latin American operations.
Investors reacted poorly to the news. At 10.15am (AEST) QBE shares were 11.27 per cent lower at $10.55, against a benchmark index slide of 0.11 per cent. In earlier trade, QBE shares touched as low as $10.25, the lowest price since QBE shares traded at $10.05 on December 18, 2013.
The embattled insurer flagged a steep fall in interim profit, saying it expects to report an interim net profit after tax of around $US390 million ($A414.93m), significantly lower than the $US477m recorded in the first half of 2013.
In addition it sees cash profit in the half at around $US415m, compared to $US590m in the previous corresponding half.
QBE (QBE) also warned on its insurance profit margin, which is forecast at between 7 and 8%, down from consensus expectations of around 10% and from 10.8% in the first half of 2013.
In recent years, QBE has built an unfortunate reputation for disappointing investors with earnings downgrades before key result releases.
QBE said its first half result was hit by the need to strengthen claims reserves by around $US170m in Latin America -- mostly due to the group's Argentine workers’ compensation business -- as well as higher than expected large individual risk claims and an adverse discount rate impact of around $US120m, excluding Argentina.
As a consequence, the insurer said its combined operating ratio for the first half is now expected to be between 96% and 97%, worse than consensus expectations of around 93%.
A combined operating ratio below 100% indicates that an insurer is making a profit on its insurance operations.
Outside of Latin America, QBE said its global business has been performing well. The Australian and New Zealand operations are expected to report a strong underwriting result, ahead of the prior corresponding period, while the European operation is tipped to report in line with the prior corresponding period amid challenging market conditions.
Despite a worsening of the North American business' statutory result compared to the previous corresponding period, QBE noted it had undertaken significant moves to both right-size the expense base of the operations, as well as improve its loss making lender placed insurer.
"We are encouraged by the progress we are making in North America," the group said.
QBE will release its interim results on August 19 and said it expects to provide a full market update at that time.