QBE confirms full year profit margin
Australia's largest insurer, QBE Insurance Group Ltd, has upgraded its full year profit margin target despite currency and equity market headwinds and a seven per cent dip in half year earnings.
The insurance giant booked a net profit of $859 million for the half to June 30, down from $921 million in the first half of 2007 but that was in line with market expectations.
A key profitability measure, insurance profit before tax margin to net earned premium reached 21.8 per cent.
Although the margin was down on last year's comparable result of 22.2 per cent it was also broadly in line with analysts' forecasts.
It was also enough for chief executive Frank O'Halloran to confirm the insurer was on track to hit a 20 per cent profit margin for calendar 2008.
"We previously said 19 to 20 per cent, so some may regard that as a slight upgrade and in my mind it is," Mr O'Halloran told a briefing.
The insurer's bottom line was hit by weaker equity markets that affected its investment income.
The stronger Australian dollar also affected both the value of QBE's investments and revenues to chew a $196 million hole through the interim profit.
Gross written premium was up one per cent to $6.6 billion and net earned premium up eight per cent to $5.1 billion.
Mr O'Halloran said QBE's premium growth was adversely affected by increased competition and below-budgeted growth for new business due to inadequate pricing, particularly in Europe and the US.
But that was offset slightly by overall higher customer retention and better than expected premium rate reductions on renewals of two per cent.
QBE made another eight acquisitions during the half, including announcing last week a $1 billion plus purchase of PMI Mortgage Insurance Ltd in Australia and New Zealand and PMI Mortgage Asia Ltd.
Those eight acquisitions are expected to add around $550 million in net written premium in the first full year and will assist profit after tax by around $160 million.
QBE will continue looking at more acquisition opportunities and expects to close purchases on several distribution agencies in the second half.
However, it will not renew its interest in fellow insurance giant Insurance Group Australia Ltd, which three months ago rejected QBE's $8.7 billion takeover offer.
"We don't dwell on the past when it comes to acquisitions," Mr O'Halloran said.
"We've gone out and spent some money on PMI and we've got a pipeline of acquisitions we're looking at."
QBE expects gross written premium to be around $12.5 billion and net earned premium to be around $10.8 billion for 2008.
That outlook is based on an average exchange rate of US 92 cents and 46.5 pence to the Australian dollar.
The insurer declared an interim dividend of 61 cents per share, 20 per cent franked, up seven per cent on the interim dividend of 57 cents per share for the first half of 2007.
QBE shares closed down 51 cents, or 2.13 per cent, to $23.40.
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