Currency hurts QBE returns
The Age
Thursday April 1, 2010
THE global insurer QBE has sought to address investor concerns about its earnings exposure to overseas markets by stating that it expects to maintain its $1.3 billion dividend payments for the present financial year.But the company also warned at its annual meeting yesterday that both its revenue and Australian dollar reported profits would continue to be hit by the strength of the local currency which is set to rise even further than the increase seen in 2009.QBE earns 75 per cent of its $14.5 billion of annual gross written premiums or revenue from its international operations. Half of the total is written in US dollars as a consequence of three acquisitions it has made in North America since 2006 at a cost of A$2.7 billion.The company's net profits for the year ending December 31, 2009, rose just 6 per cent in Australian dollar terms to $1.97 billion.Investor disappointment with the result has prompted a 15 per cent slide in its share price since late February although it has since recovered $1 of a $3.70 fall. The stock closed 22 cents down yesterday at $20.83.In a first quarter trading update given the investors at the meeting in Sydney, QBE's soon-to-retire chairman John Cloney told shareholders that the insurer's first half income and profit would be "even more adversely impacted" by the currency's continuing strength.It now expects the dollar will be 25 per cent higher in value than it was in the corresponding period a year ago.In its last financial year, the group had to contend with a 28 per cent jump in the Australian unit against its US counterpart and a 15 per cent rise against sterling which impacted its British earnings.QBE is targeting growth of just 3 per cent in Australian dollar terms in its 2010 premium income which suggests an increase of around $435 million to just under $15 billion.At the same time the company confirmed that it was on track to earn an insurance pre-tax profit margin of between 16 to 18 per cent €” a range line with last time's 17 per cent outcome but which was below analysts' expectations.A pledge to maintain its dividend would also indicate a total payout of at least $1.28 a share on its expanded equity base. That increase in the number of shares in issue and the effect of the dollar on its reported profits kept the uplift in the full year dividend to just two cents a share. QBE, though, does expect to weather the recent global and domestic catastrophic events such as the recent earthquakes overseas and the hail and rain storm damage in Melbourne, Perth and southern Queensland.Mr Cloney said that the company's share of those claims was within its "substantial allowances". QBE also has $180 million of additional cover in place with re-insurers who could pick up part of the bill.
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