Australia's QBE Profit Slumps as Claims Mount

Australia's QBE Insurance posted a 45 percent fall in full-year net profit after unprecedented weather events in 2011 sent claims soaring, hurting the insurer's bottom line.


Australia's most valuable insurer also announced plans to raise $500 million from shareholders to boost its capital ratio and said it had found a replacement for chief executive and deal-making kingpin Frank O'Halloran, who is retiring.

"One would have thought they could have got the capital raising through an underwritten dividend, but what it does is it addresses the potential weakness in QBE's core tier capital under new APRA (rules)," said Andrew Adams, insurance analyst at Credit Suisse.

QBE warned in January that its net profit would fall as much as 50 percent after record catastrophe claims and said it would cut its dividend.

"In 2011, the global insurance and reinsurance industry experienced the worst year on record for catastrophes with insured losses from major catastrophes currently estimated at around $105 billion," O'Halloran said in a statement on Tuesday.

O'Halloran, who was instrumental in QBE's strategy in making more than 75 acquisitions in 10 years to expand its reach to 50 countries, will retire on August 17 after 14 years at the head of the company.

O'Halloran will be replaced by John Neal, currently CEO of QBE's global underwriting operations.

"John Neal has spent quite some time in the group's European operations, which holds their biggest liabilities. So that should give comfort to investors," said Credit Suisse's Adams.

QBE reported a net profit of $704 million, below the average forecast of seven analysts of $718 million, after being hit with massive claims from floods and storms in Australia and earthquakes in New Zealand in 2011.

It was also buffeted by hurricanes and tornadoes in the United States, floods and riots in Europe and floods in Thailand.

The slide in earnings marks its second consecutive annual net profit fall.

The insurer said it would undertake a capital raising for institutional and retail investors, which will replace $500 million of its Tier 2 capital.

Australia's other major insurers Suncorp and Insurance Australia Group, last week reported first-half earnings that topped forecasts but were marred by an unprecedented level of claims from floods, earthquakes and other natural disasters.

QBE shares were on a trading halt on Tuesday, having fallen 11 percent for the year, compared with Suncorp's 3 percent decline and a gain of 9 percent for IAG.

QBE stock fell to an eight year low after its January profit warning.