QBE Anticipates Insurance Pressure Amidst Inflation: Positive Outlook Maintained

Highlights:

• QBE, the Sydney-based insurer, foresees continued pressure on Australian auto and home insurance due to rising inflation.
• QBE acknowledges strains in Australian insurance and other sectors, including some US coverage.
• QBE maintains a target of 10% growth in gross written premiums, excluding currency fluctuations.

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Inflation Impact on Insurance Sector

QBE Insurance Group (ASX: QBE) , the Sydney-based insurer, foresees continued pressure on Australian auto and home insurance due to rising inflation. This follows a similar acknowledgement from rival insurer IAG regarding increased costs for motor damage repairs.

Natural Disaster Costs and Business Strain

Despite facing lower-than-expected natural disaster costs over the past four months, QBE acknowledges strains in Australian insurance and other sectors, including some US coverage. Challenges in North American crop conditions further contribute to potential business strain in 2023.

Resilient Business Outlook

QBE, operating globally and covering diverse areas from aviation to healthcare, asserts resilience amid inflation challenges. The insurer expects natural disaster trends in the latter half of the year to offset business strains, remaining on track to meet full-year forecasts.

Financial Targets and Market Response

QBE maintains a target of 10% growth in gross written premiums, excluding currency fluctuations. The company also aims for a 94.5% combined operating ratio, indicating underwriting profitability. Market response is positive, with QBE shares rising during Monday trading.

Regional Insights and Crop Insurance Challenges

In the Australia-Pacific region, premium rates surged by 12.5% in the last quarter, while customer retention remained stable at 86%. However, the overall growth rate for the year dipped compared to the previous period, primarily influenced by challenges in North American crop insurance.

Persistent Inflation Challenges

QBE highlights the persistence of inflation challenges, particularly in personal insurance in the Australia-Pacific region, certain North American lines, and accident and health cover. Analysts note the stickiness of inflation, impacting labor costs for repairs in the services sector.

Market Analysts' Perspectives

Analysts, such as Mark Tomlins from Hunter Green, view QBE's overall update positively. Despite potential risks, including geopolitical tensions and natural disasters, the lack of bad news is seen as positive. The company's adherence to full-year guidance is emphasized.

Budgetary Overview and Catastrophe Preparedness

QBE had raised its internal budget for natural catastrophes earlier this year but has only utilized $950 million despite events like wildfires in Europe. Remaining budgetary reserves suggest a favorable variance, providing a buffer against potential adverse developments.

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