Shaw and Partners analyst Brett Le Mesurier said the update had all the appearances of another profit downgrade from QBE. "My numbers went down," said Mr Le Mesurier, who has a "sell" recommendation on QBE shares. "If it looks like a duck, and quacks like a duck." While Mr Le Mesurier said he supported QBE chief executive Pat Regan's strategy of selling non-core businesses, he said what QBE shareholders would be left with was "not that great," and QBE lacked a competitive advantage in its core markets. In a market update, QBE announced the changes, alongside a new reinsurance program, which it said would increase the company's protection against catastrophic events, such as major cyclones or hurricanes. It will increase its budget for large individual risk and catastrophe claims from $1.2 billion to $1.4 billion. Mr Regan characterised the impact of the changes on its profits in 2019 as a "small P&L headwind" and said he was comfortable with the group's performance for the 2018 year, and there was no change in its guidance for that period. To illustrate the impact of the new reinsurance program, QBE said its probable losses in a 1-in-20 year Australian cyclone would be lowered by 20 per cent, while its losses under a 1-in-200 year cyclone would be curbed by 35 per cent. "The 2019 program is expected to save around $125 million in reinsurance costs; however, this will be more than offset by an increase in the budgeted allowance for large individual risk and catastrophe claims to around $1.4 billion, up from around $1.2 billion currently, given greater variability around reinsurance recoveries," the company said. After a series of profit downgrades under Mr Regan's predecessor John Neal, Mr Regan has vowed to improve QBE's financial performance by simplifying the business and curbing earnings volatility. Addressing investors on Tuesday, Mr Regan said there was a path towards "sustainable" return on equity in the double digits, as he also announced the final stage in its program to simplify the insurance. QBE said it would sell its businesses in Puerto Rico, Indonesia, and the Philippines, which between them are were worth about $100 million in gross written premium a year. The cost cutting announced by QBE will include a rationalisation of its technology systems, greater automation, and a more "streamlined" operating structure in Australia that included an unspecified number of job cuts. He said about a third of the cost cuts announced by QBE would come out of its North American business, where it had previously made a series of bolt-on acquisitions. Mr Regan also said QBE had been a heavy user of consultants, and it would also trying to reduce its office space. Clancy Yeates is a business reporter.
Brett Le Mesurier said profits could be cut by between AUD50m ($36m) and AUD100m in 2019 because of an increased allowance for large individual risk and catastrophe claims which could range between AUD1.2bn to AUD1.4bn. The company said, however, a AUD130m cost-cutting programme will help its underwriting operations maintain profitability. The firm had already announced a series of profit downgrades. Shaw and Partners analyst Insurer QBE said the QBE announcement looks like another such downgrade. While he backed the firm’s decision to sell non-core businesses, Le Mesurier said the remainder still showed the firm lacking a competitive advantage in the most important markets.