QBE Europe warns of tough UK market as profit drops 23%

QBE’s European operations made an insurance profit of £186m in 2011, down 23% on the £243m it made in 2010.

Insurance profit is the underwriting result plus investment income.

The company, which comprises QBE’s commercial insurance and reinsurance operations in Lloyd’s, the UK, Ireland and mainland Europe, also warned of continuing competitive pressures in the UK and European non-life insurance markets.

QBE Europe’s London market operations were hit by the global natural catastrophes in 2011, which included the Australian storms, Thailand floods and earthquakes in New Zealand and Japan.

Despite the catastrophe burden, QBE Europe’s combined ratio was a still-profitable 95.5% – although this was five percentage points worse than 2010’s 90.5%.

The company described the combined ratio as “a strong performance compared with most of our market peers, particularly given the increased level of catastrophe events”. QBE also said that the catastrophe losses were offset in part by reserve releases from prior underwriting years.

Gross written premium increased 12% to £3bn (2010: £2.7bn). QBE attributed the growth partly to its acquisition of Belgian reinsurer Secura in late 2010. Premium income was also boosted by rate increases, new business and product initiatives and reinstatement premiums received by the division’s reinsurance business.

“Our professional team in Europe has again produced a strong result in difficult market conditions and after a record year of catastrophes for the industry,” chief executive of QBE’s European operations Steven Burns said. “I appreciate the support and commitment of our hard-working staff over the past year.”

In addition to the hits on underwriting profitability from natural catastrophes, QBE Europe’s investment income suffered as a result of the eurozone debt crisis and weaker economic conditions in the UK and the USA.

While the company achieved “significant” rate increases in energy and catastrophe-hit lines of business, as well as a 5% increase in UK commercial motor, QBE Europe said in other classes, particularly UK and European property/casualty, markets remained “very competitive”. QBE Europe achieved rate increases of 2% across its business.

“Despite these difficult conditions, the diversity of our businesses and careful risk management assisted in producing an underwriting profit,” the company said.

The QBE group as a whole made a profit after tax of US$704m in 2011, down 45% on the US$1.3bn it made in 2010. The company also announced that longstanding chief executive Frank O’Halloran is retiring on 17 August.

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