Mortgage insurer QBE has announced $250m net loss this year on the heels of disappointing results in its North American business.
After calling a trading halt on Friday the insurer shocked the market yesterday with what CEO John Neal called a “disappointing” result.
Analysts had previously predicted a profit of up to US$1.1billion. QBE shares plummeted by 20% following the announcement.
“It is disappointing that in a year when we made excellent progress in improving our current accident year profitability, strengthened our key capital ratios and our balance sheet, successfully launched our Operational Transformation Program and strengthened our executive team, that we continue to be hampered by the past,” said Neal.
The result would be affected by $600m in goodwill writedowns, primarily relating to QBE’s North American business, which saw an increase in prior accident claims provisions of around $300 million. The US company also dealt with low interest rates, low prices and the worst drought in the US in 50 years, resulting in a low crop yield.
“To go forward with greater certainty around our group underwriting results, we are emphatically dealing with the North American issues that have been detrimental to confidence and underwriting performance over recent reporting periods. As painful as these decisions are, we are confident that our business in North America will trade profitably in 2014,” said Neal.
The decision by Bank of America to almost halve its lending book was a blow to QBE’s mortgage insurer Financial Partner Services (FPS). FPS also recently failed to win a new banking customer.
QBE FPS will report a loss in 2013 and gross written premium will fall to $960m in 2013 from nearly $1.6bn in 2012 and could fall further in 2014 to $800m.
Restructure of FPS business will result in a one-time charge of $150 million and a write-down of the unit’s remaining $330 million of identifiable intangibles .
Chairman Belinda Hutchinson also announced she would retire form the board of QBE in March.
“The performance of our North American business announced today is deeply disappointing,” said Hutchinson.
“Following the substantial changes we made to our US management team earlier this year, Group CEO John Neal initiated and has led a further review of our North American business. I’m confident that the management changes we have made will enable the North American business to return to profitability.
“Over the last eighteen months I have been pleased to have been able to lead substantial Board and management renewal at QBE.”
Belinda Hutchinson has been chariman of QBE for over three years. She will be succeeded in March by Marty Becker, a recent addition to QBE's board.