The QBE Insurance Group Ltd (ASX: QBE) share price rose 2.8% this morning before being sold off to now trade at a modest 1.7% gain. This was despite the insurer announcing it expects to report a net loss for the half year to 30 June 2020. QBE has forecast a statutory loss after tax of around $750 million for the half year.
Impacts of COVID-19
COVID-19 is expected to have an underwriting impact of $335 million. This includes $150 million of net incurred claims, $115 million in additional risk margin, $50 million in premium concessions and $20 million of expenses including motor vehicle premium refunds. The pandemic has impacted multiple lines of business including property (business interruption), reinsurance, workers' compensation, trade credit, and lenders mortgage insurance.
The benefit of reduced personal motor claims frequency was returned to customers through premium refunds. While the landscape remains uncertain, QBE currently estimates total COVID-19 related costs will be around $600 million pre-tax. This includes $265 million of potential further net claims that could emerge over the next 12 – 18 months, as well as a net investment loss of around $125 million as a result of extreme market volatility.
Catastrophe and prior accident claims
Catastrophe claims increased to $310 million during the half, up from $180 million in 1H FY19. This exceeded QBE's $250 million allowance and reflected the devastating impacts of the bushfires in Australia coupled with east coast storm and hail activity. The half year result will also include adverse net prior accident year claims development of around $120 million. Lower risk-free rates used to discount net outstanding claims are expected to impact the underwriting result by around $335 million.
How has the QBE share price been performing?
The QBE share price fell from a February high of over $15 to a low of $7.32 in March. It has since recovered 34% to currently trade at $9.83. This is slightly ahead of the broader S&P/ASX 200 (ASX: XJO) which has recovered 33% from its March low. QBE conducted an $825 million capital raise in April in order to lift its regulatory capital. This provided the company with the capital strength to navigate a range of severe economic scenarios.
Despite the disruption caused by the pandemic, insurance trading conditions have strengthened, with renewal rate increases averaging 8.7% during the half compared with 4.7% during 1H FY19. QBE Group CEO, Pat Regan, said, "Despite the impact of COVID-19, I am encouraged by the strong underlying trends evident in the result. Notwithstanding significant uncertainty surrounding the enduring impact of the COVID-19 pandemic, our greatly strengthened capital base positions us well to capitalise on accelerating pricing momentum and emerging organic growth opportunities".
