Finance News Network Transcription of Discussion with QBE Insurance Group Limited (ASX:QBE) CEO, John NealQBE Insurance Group
(ASX:QBE) is truly a global property and casualty insurer. We operate on the ground in 37 countries. And we provide insurance products and services to our customers in over 140 countries, including in the major insurance hubs of the world of London, New York, Bermuda and Singapore. In 2016, our revenue or gross written premium will be a little over US$14 billion.
Our first-half results for 2016 recorded a profit of US$265 million, or our combined operating ratio of 99 per cent, which was broadly in line with market expectations. Although the mix of performance was slightly different to what the market expected. In particular, there was a charge of $263 million for the adverse impact of lower global risk-free rates. Really importantly, we told the market that we would meet our full year expectations for 2016, which is a 94 to 95 per cent combined operating ratio, underpinned by continued efforts to improve the efficiency and reduce the expenses, of running our organisation and business.
The Board was pleased to announce a five per cent increase in the interim dividend for 2016, at 21 Australian cents per share, which is 50 per cent franked. And our expectation is that we will be able to increase dividend payments over the short term and over the coming years.
QBE has four major trading divisions. Our standout result in the half-year was for our European business, which produced an 88 per cent combined operating ratio. Our North American business continues its trajectory of improvement and we’re pleased to be reporting improved results in 2016, over 2015. Our emerging markets business operates in 22 countries across Asia Pacific and Latin America, really in the important emerging economies of the world. And we’re seeing good growth and strong performance from that division.
Australia in the home market was not without its problems. Where a combination of price reduction, claims inflation and the well-publicised challenges of the compulsory third party account in New South Wales, impaired performance. I think we’ve been quick to talk about the levels of rate increase, the tightening of terms and conditions, and really the support we’ve got for the transformation of compulsory third party insurance in New South Wales. And we said confidently we felt that results in Australia would correct, and correct really quite quickly.
In Australia, I’ve asked Pat Regan our Group CFO, to take on the interim responsibilities of CEO for our Australian business, whilst we undertake and complete a global search for a new CEO for that division. So Pat is really leading the charge in increasing price, tightening terms and conditions and generally putting the Australian business back on track, to realise the levels of performance that we would expect from that important division.
Within QBE we don’t really talk about transformation anymore, absent the remediation activity that’s needed in the home market in Australia. We really have completed all that we would expect to do to set our business up for future success. And really as we look forward in 2016, we believe we can gently grow our business and continue to improve its performance, really through operational efficiency and very solid management at the claims line.
If you look at our business, we’ve got six key areas of focus. The first is really around what we do for our living, in ensuring that our underwriting performance is first class. And our primary focus there is in the remediation of our Australian business. The second is really around our customer and making sure that the products and services we provide, connect really quite well with the customer base we have, which converts to improved retention for us. The third is ensuring that globally we attract and retain the best possible talent in the insurance industry.
The fourth for us is really around operational effectiveness. Can we continue to improve the quality of services we provide, and the efficiency with which we deliver them? The fifth is a strong focus around claims transformation, 62 cents in every dollar we take in premium is spent in claims. So how can we be more effective and more efficient, in the way in which we manage the claims line? And the sixth really is recognising that in a digital world, particularly in our industry, data analytics are really critically important. And we’ve not hesitated to make the right investment to ensure that we’re at the frontend of the digital revolution.
So all in all, we believe that we can continue to improve the performance of our business in 2017, through 2016 as well.
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