QBE spikes LMI premiums by 9%, cites risk of 'long term' volatility

by Mackenzie McCarty21 Aug 2013

QBE Group has raised its LMI premiums by 9% this year, claiming long-term volatility risk in the Australian property market is behind the decision, despite falling mortgage default rates across the country.

The insurance giant’s CEO, John Neal, told journalists at a media briefing yesterday that LMI is a 'long-term' product and that QBE anticipated more volatility in the housing market in years to come.

His argument mirros that made by Genworth chief commercial officer, Bridget Sakr, in an interview with Australian Broker earlier this year, following revelations that the company had increased premiums for self-employed clients.

‘‘Our assumptions are not that there’s going to be a housing price crash in Australia,” says Neal, “but... if you look out beyond certainly the next two to three years, there’s a little bit more volatility. So hence adjusting the prices now for products that will actually be in force right the way through to 2023 to 2025.’’

Neal's comments arrive in the wake of QBE Group’s half-year financial results, which announced the company's profits fell 37%, down to $523m in the latter half. APRA’s most recent figures place QBE’s gross earned premium in 2012 at $234.4m.

QBE shares a duopoly on the Australian LMI sector with Genworth (the two companies together control 75% of the market) and Neal says QBE’s pricing is similar to that of its only major competitor.

‘‘When someone pays us a premium in 2013, we think the life of the policy is between nine and ten years…So you’re trying to look forward into the market place and make sure you’ve charged the right premium today over quite an extended period.’’

However, recent bank reports site fewer mortgage defaults – though Neal claims there has been ‘no change’ in delinquency rates.

According to Fairfax reports, QBE’s results yesterday said it expected premium revenue from Australian LMI products to be US$400m (A$440m) this year, while separate results filed for QBE’s LMI division in April showed combined operating ratio was 64% - meaning it was paying out significantly less in claims than it received from premiums.


  • by mac 21/08/2013 9:26:45 AM

    "while separate results filed for QBE’s LMI division in April showed combined operating ratio was 64%" - I don't know the insurance industry well but this seem very high to me after a quick Google it equates to a 36% profit margin.

  • by Chappo 21/08/2013 10:11:33 AM

    "Neal says QBE's pricing is similar to that of its only major competitor" (Genworth). What a surprise!? We need the new Federal Govt to legislate for LMI to be transferrable when refinancing as one way of reducing the burden on borrowers.

  • by Pablo 21/08/2013 10:13:15 AM

    On my book (a 9 year old book) in SA I have had no claims on any of my deals. Despite probably my clients paying over a million dollars in premiums. This insurance is a taking advantage of innocent people and should be investigated. Or at lest make the premiums or locations more accountable to risk (like car insurance). And what long term insurance product refuses to pay back a refund if the contract is cancelled???? PLEASE INVESTIGATE THIS RIP OFF INDUSTRY