QBE Insurance Group, Australia's top insurer by premium income, missed market estimates with a 30 percent rise in full-year profit because of negative currency movements, sending its shares down more than 13 percent.
QBE said the Australian dollar's appreciation over 2007, including a 10 percent gain against the U.S. dollar, had taken 4 percent of the group's net profit over the period, and it warned that currency moves could continue to have a negative effect.
"The currency headwinds have taken the market by surprise," said Peter Vann, a fund manager with Constellation Capital Management Ltd, which oversees about A$1.5 billion ($1.4 billion), including QBE shares.
QBE forecast insurance profit growth of between 19-20 percent in 2008, compared with 22.2 percent achieved in 2007.
"At current exchange rates, we expect gross written premium to increase by close to 7.5 percent in 2008 and net earned premium by 8 percent," said Chief Executive Frank O'Halloran.
QBE, which earns about two-thirds of its premiums from overseas, has been operating in a tough environment with analysts expecting further downward pressure on premiums.
Its shares fell much as 13.5 percent to a 15-month low of A$24.81, taking losses this year to 23 percent.
"In this period of significant premium declines and turbulent markets, Frank has got a pretty robust outlook," Vann said, adding that the share price reaction was overdone.
QBE, which has completed more than 100 acquisitions since 1981, reported net profit of A$1.925 billion compared with A$1.483 billion reported a year earlier. Eight analysts had projected on average year profit at A$2.037 billion.
But the figure was above QBE's own forecast of a 20 percent rise and an insurance margin of 18 percent.
O'Halloran said strong profit growth came despite the substantial appreciation of the Australian dollar, lower overall average premium rates and volatile investment markets.
He said QBE faced claims from 21 natural catastrophes last year, up from five in 2006, in 45 countries.
QBE last year spent $2 billion buying Wintherthur U.S. Holdings and Praetorian Financial to boost its presence in the United States.
Falling asset values on the back of recent debt and equity market volatility is expected to offer QBE more opportunities to pursue acquisitions, analysts said.
QBE's smaller rivals Insurance Australia Group and Suncorp-Metway, are due to report later this week. IAG and Suncorp have been hit by claims from heavy storms and a large number of weather events in the first half of 2008.