QBE saves extra $90m in cost cutting drive
QBE is stepping up its attempt to find cost savings across its business, unveiling measures that are expected to result in an extra $US90 million ($98 million) in savings.
The insurer affirmed on Tuesday that its move to replace hundreds of workers in Western countries with staff in Manila was on track to result in annual cost savings of "at least" $US250 million by 2015.
As well as this cost-cutting drive, which is being implemented in Australia first, the company signalled it may save an additional $US90 million by looking to better exploit its buying power when handling insurance claims.
Chief executive John Neal also indicated he was confident the company expected to hit its full-year forecast for premiums to increase by about 5 per cent, and said the company had benefited from relatively few natural disasters and the recent fall in the Australian dollar.
QBE, which is planning to rationalise its operations after acquisition-led growth under former boss Frank O'Halloran, earlier this year unveiled a plan to save $US250 million a year by 2015 by sending 700 positions to the Philippines.
The changes are now being introduced across its Australian division. Mr Neal said expenses would be cut by "at least" $US250 million as a result of the program. It will also result in changes to operations in North America and Europe.
"This is very much the start, the first wave if you like, and there will be more activity that will follow," he said.
So far, 521 positions in Australia have been affected by the outsourcing. Most of these staff are set to be redeployed within the group, 39 have been made redundant, and 52 contractor positions have not been renewed.
QBE's Australian head, Colin Fagen, said it was "extremely confident" it would save more than the original $US85 million in costs that it had planned to trim from its Australian operations by 2015. This was likely to occur because the company's redundancy costs had been lower than expected, and the volume of work being carried out in Manila was greater than expected.
Alongside the Manila plan, QBE expects to save at least $US90 million a year by improving its procurement processes when handling claims.
Nomura analyst Toby Langley said the update suggested QBE's total savings could be between 30 and 40 per cent more than it forecast earlier this year.
Mr Langley said it was a "very confident" presentation from QBE, and its claims experience in the latest half appeared to have been benign.
"They clearly feel very comfortable, in contrast to more difficult announcements made over the last 18 months," he said.
Shares in the insurer rose 4.2 per cent to $15.94 after the update.
QBE, which reports its profits on a calendar-year basis, will present its half-year results in August. Insurers have benefited from relatively few natural disasters in recent months. QBE has extensive US operations, so it tends to benefit from a falling Australian dollar.