QBE -1.62 %: delivered a broadly solid first-half result, with cash earnings in line with expectations, premium growth ahead and return on equity remaining strong. The key debate is whether the group’s full-year targets are now looking too conservative given the first-half performance and a supportive investment-income backdrop, which implies they’re expecting some 2H softening.
Key results:
- Cash NPAT of US$1.03 billion, up 3.6% and around 1% ahead of consensus.
- Gross written premium of US$15.14 billion, up 9.5% and around 2% ahead of consensus.
- Cash EPS of US68.3c, around 1% ahead of expectations.
- Combined operating ratio of 92.8%, a touch softer than the 92.5% expected.
- Insurance trading margin of 12.6%, broadly in line with consensus.
- Interim dividend of 33c per share, up from 31c.
- ROE of 17.7%, comfortably ahead of QBE’s medium-term target of more than 15%.
Premium growth was particularly strong across International and Australia, while North America was softer. Group GWP growth of 9.5% was ahead of the mid-single-digit pace management is targeting for the full year. The main area of caution was underwriting quality. While the reported combined ratio of 92.8% was close to target, it benefited from below-budget catastrophe losses and reserve releases. On an underlying basis, the combined ratio was materially higher, meaning QBE will need a stronger second-half underwriting outcome to land around its full-year 92.5% target.
That said, there are a few offsets. Investment income should remain supportive, particularly if bond yields stay elevated, while QBE’s capital position remains strong. Capital sits above the top end of its operating range, which could reopen the door to further capital management after the completion of its recent A$450 million buyback.
The dividend also looks conservative. The 33c interim payment represents a payout of only around one-third of earnings, below QBE’s 40–60% target range, suggesting there is scope for a materially higher second-half distribution if earnings and capital remain strong, but it also implies that the board could be expecting a tougher 2H.
MM’s view: Solid result but the setup for the second half remains interesting. Underwriting needs to improve to hit the combined ratio target, yet ROE is already running well above the company’s medium-term ambition, premium growth remains healthy and investment income should stay supportive.
- All in all, a mixed update from QBE, and this was reflected in today’s wide trading range. We’re happy to have sold QBE early last month ~$25.30
MM remains neutral QBE
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