QBE’s work to achieve a “better balance” in property catastrophe exposures across its global portfolio is delivering improvements, group CEO Andrew Horton says. 

“We’ve been spending the past three or four years working on portfolio optimisation, so we’ve been looking at our property exposure across the world and trying to get it in better balance than historically,” he told insuranceNEWS.com.au.

The result is better management of the catastrophe allowance and loss outcomes that are probably less severe than they might have been, he says.

QBE’s first-half catastrophe costs fell to $US479 million ($735 million) from $US527 million ($809 million) a year earlier. The figure was below a $US549 million ($843 million) allowance and came in an active half that included US wildfires and severe storms. 

“We’re proving that the work we’ve done on portfolio optimisation is working when we have these catastrophic losses,” Mr Horton said.

QBE has reduced its US mid-market exposure and losses related to the LA wildfires were largely within its international division, which includes reinsurance and Lloyd’s business.

Mr Horton says he is comfortable with the company’s position in its Australia Pacific property portfolio.

Group first-half profit jumped 27% to $US1.02 billion ($1.57 billion), supported by increased revenue, steady investment income and the lower perils losses.

Gross written premium increased 6% to $US13.82 billion ($21.21 billion), or 8% excluding exited portfolios, and the combined operating ratio improved to 92.8% from 93.8%.

Premium rates increased 2.1%, slowing from 3.4% in the first quarter to 0.8% in the second.

“Increases for the half were broadly in line with expectations for North America and for international, though were a touch softer than anticipated in [Australia Pacific],” CFO Inder Singh told a briefing.

The company – which reported an adjusted return on equity of 19.2% – affirmed full-year targets for constant current GWP growth around the mid single digits and a combined operating ratio of about 92.5%.

Mr Horton says QBE is delivering on its plans for a second straight year, after failing to meet expectations in the past.

“Ultimately, insurance is all about diversification, and QBE is a fantastically diverse business,” he said.

“With our portfolio now in better balance, we have confidence in sustaining more consistent performance.” 

Analyst Morningstar says QBE delivered a strong result, but it expects increasing competition to keep rate increases below growth in claims costs, with areas of property among “pockets of weakness”.

QBE shares fell 8.8% to close at $21.39 on Friday after rising ahead of the announcement.

Mr Singh described the reaction as "a bit overdone" and said the market had looked at the rate of premium rate increases.

"Profitability is very healthy now, so across the industry we're seeing people being more thoughtful about how much rate increase is now going through consumers, because if we are making decent returns we cannot continue to increase prices to people," he said in a video interview released on the ASX.

"The rate of rate increase in the second quarter was lower, but we are looking at it as through the year the business is on a very sustainable footing, profitability is good, the outlook is strong, and I am hoping that some of this over-reaction unwinds over the next few days."