Chairman Wilkins' speech spells out the key to QBE's future, my bolding:
"However, we expect to resume dividend payments in 2021, up to 65% of adjusted cash profit, as the economies in which we operate recover and QBE returns to profitability.
"Despite the challenging landscape, the strength and resilience of our business is evident in the Group’s underlying financial performance. Pricing momentum accelerated during 2020, especially in the northern hemisphere, and this contributed to a further improvement in our attritional claims ratio. Encouragingly, growth in our top line was stronger than it has been for many years with underlying gross written premium (GWP) up 10% from 2019, underpinned by an average group-wide premium rate increase of 9.8%.
"Strong market conditions are continuing into 2021 as evidenced by the 8.9% premium rate increase achieved in the first quarter, compared with 7.3% in the first quarter of 2020. Each of our divisions achieved premium rate increases in line with expectations and stronger than the increases recorded in the prior corresponding period, including 10.2% in North America, 9.1% in International and 7.5% in Australia Pacific.
The top-line has improved meaningfully with headline GWP increasing 28% compared with the first quarter of 2020 or 23% on a constant currency basis. This reflects premium rate increases and continued growth in select areas of the global portfolio coupled with a very substantial uplift in Crop premiums due to significantly higher commodity prices and underlying growth.
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Ash here.
The resumption of dividends is very welcome, but the bigger story is the premium increases.
Insurers invested entirely in interest-bearing assets at near-nil interest rates (QBE) must make their profits from premiums, not investment income. Therefore significant premium rises are essential to stay in business. The latest quarter shows QBE doing exactly this and simultaneously growing the book strongly.
Well done.
Credit Suisse recently began coverage with an $11.80 target. Based on a continuation of the 1Q GWP trend, QBE will report attractive earnings in July and easily exceed CS' target.
Ash
QBE Price at posting:
$10.41 Sentiment: Buy Disclosure: Held
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