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QBE downgrade prompts wrath

QBE Insurance has become the latest company to feel the wrath of the market, with shares in the insurance giant tumbling as much as 11 per cent after it issued a downgrade to its profit margins.

QBE Insurance has become the latest company to feel the wrath of the market, with shares in the insurance giant tumbling as much as 11 per cent after it issued a downgrade to its profit margins.

The severity of the sell-down prompted long-serving chief executive Frank O'Halloran to accuse the market of overreacting to the insurer's first-half profit result.

Mr O'Halloran labelled QBE's 53 per cent jump in first-half net profit to $US673 million ($A649.7 million) as "stunning" in light of disasters ranging from earthquakes to floods at the start of the year pummelling insurers around the world.

After a savage hit to QBE shares in early trade, Mr O'Halloran attempted to use the company's profit briefing to calm investor nerves.

"I should say that my view might not be entirely shared by the investment community that the results we produced for the half-year were absolutely stunning, given the level of catastrophes that the world has experienced in the past six months affecting most insurers and reinsurers around the world," he said.

Shortly before the 90-minute presentation to analysts and investors began, Mr O'Halloran also sent an email to QBE's 6700 staff, many of whom own shares in the company, urging them not to lose confidence even in the face of the market volatility. His comments had some impact, although the shares still ended the day down 5.6 per cent at $12.98. The broader S&P/ASX 200 finished down 3.5 per cent.

Investors looked through the profit increase to focus on QBE cutting its full-year insurance profit-margin outlook. They were also responding to the 53 per cent profit increase being at the bottom of the company's own guidance. The insurer has seen catastrophes hit its key markets of Australia, New Zealand, the US and Japan in the first half, with payouts running at more than $US1 billion ($A956 million).

The insurance profit margin fell to 11.2 per cent, from 15.8 per cent the year before, on record levels of large individual risk and catastrophe claims. QBE said it was now targeting an insurance profit margin of between 11 per cent and 14 per cent for 2011, below the previous outlook.

Gross written premium, the standard measure of policy sales in the insurance industry, increased 30 per cent to $8.94 billion. Insurance profit fell a hefty 46 per cent to $291 million.


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