QBE Group says COVID-related business impacts have been “modest” so far this year, as the insurer today announced significantly improved first-half earnings for the six months to June 30.

Adjusted cash profit after tax improved to $US463 million ($628 million) from a loss of $US666 million ($904 million) in the corresponding half last year while statutory net profit reached $US441 million ($598 million), compared with last year’s $US712 million ($966 million) loss.

Rate gains across many key portfolios including the Australia commercial lines led to improved underwriting results of $US642 million ($871 million), compared with a $US524 million ($711 million) deficit last year.

Overall gross written premium (GWP) increased to $US10.2 billion ($13.8 billion) from $US8.01 billion ($10.9 billion). Australia Pacific GWP climbed to $US2.55 billion ($3.5 billion) from $US1.83 billion ($2.5 billion) and North America GWP rose to $US3.78 billion ($5.1 billion) from $US2.89 billion ($3.9 billion).

Interim Group CEO Richard Pryce says the adjusted combined ratio of 93.3% achieved for the period is the best in almost a decade. Last year the combined ratio blew out to 103.4%.

“Pricing remains strong across all regions and in almost every product line,” Mr Pryce said in an earnings call from London. “The trend in premium rate increases is impressive, particularly the step-up in 2020, and then again in the recent half.”

The group achieved average rate renewal increases of 9.7%, up from 8.7% a year earlier. In the Australia Pacific market, rates rose 7.7% from 5.5%, in North America the figure grew to 10.2% from 9.5% and in the International market it went up to 10.5% from 10.1%.

However there are indications that the pace of hardening may have peaked.

“Although the pricing environment remains attractive, I caution you that there are some signs that momentum is moderating, particularly in international markets here in London, where rate increases have been particularly strong now for nearly four years,” Mr Pryce said.

Mr Pryce says the recent trend in QBE’s catastrophe cost is “concerning” as the first-half results show net cost of claims rose to $US462 million ($627 million) or 7% of net earned premium from 5.5% last year.

“The rise in frequency and severity of catastrophe costs is one of the more difficult issues that the industry is presently grappling with,” Mr Pryce said.

“We continue to view all catastrophe exposure with caution [and] we still consider the pricing of catastrophe risk to be merely adequate, rather than margin enhancing and as a consequence, we have not increased our catastrophe exposure.”

He says the business has no plans at the moment to materially change its appetite on catastrophe reinsurance.

“Reinsurance is not a substitute for doing the proper job on underwriting and that’s why we have not increased our cat exposures for the first half of the year,” he said.

Turning to the pandemic, Mr Pryce says “the COVID-19 impact during the first-half was modest”. Current accident year COVID claims costs in the first-half are about $US20 million ($27 million) and they’re primarily attritional claims in accident & health and workers’ compensation in North America and business interruption (BI) in Australia.

QBE says the $US130 million ($176 million) in COVID provisions it set aside for this year may prove excessive. The $US130 million is part of the $US785 million ($1 billion) in estimated ultimate net COVID cost allowance it has set aside for potential virus claims exposure.

“While there's still a long way to go before year end, I would be disappointed if we didn't come in below that,” Mr Pryce said, explaining the $US130 million provision “is looking on the high side”.

While the second BI test case in Australia is still a long way from legal determination, he says “it’s probably fair to say [QBE feels] a little bit more comfortable on the valuations of the potential claims if they are covered because our analysis shows they may be a little bit less than initially expected”.

“And also we haven’t got a material uptick in claims notifications,” Mr Pryce said. “I think as far as that is concerned, we feel pretty good but the area we haven’t seen many claims this year that we possibly anticipated in the $US130 million provision is on the credit lines, in [lenders’ mortgage insurance] and trade credit and that has been quiet.”