Tuesday 24 February 2015 by Justin McCarthy Company updates

QBE FY14 Results update - Good for debtholders

QBE Insurance Group Ltd reported a full-year profit of US$742m for FY14, compared to a full year loss of US$254m in FY13 on an improved North American business and absence of one off write downs as seen a year earlier.

The profit was below markets consensus of US$826m and guidance was also muted which is likely to disappoint equity investors (shares were off around 4% at market open). QBE expects its gross written premium for 2015 to be in the range of US$15.5bn to $15.9bn compared with US$16.3bn in 2014 as tough market conditions and the recent asset sales take effect.

Management have also announced a delay in the potential spin-off or IPO (initial public offering) of QBE’s lenders mortgage insurance business, which is likely related to the recent problems seen at Genworth.

However, from a debtholder’s perspective the results were strong.

Last August, the company announced plans to raise about US$1.5bn by issuing new shares and selling assets. This has now been achieved following an A$800m equity raise (plus the retirement of senior debt and issue of subordinated debt) and asset sales, including selling its U.S. agency business to Alliant Insurance Services Inc. for around US$300m, its Australian underwriting-agency business for US$272m and has agreed to sell its Argentine workers compensation business for US$95m.

The following is the key slide for debtholders from the results presentation which shows the significant improvement in the capital position (i.e. APRA capital base), reduction in borrowings and material reduction in leverage (with debt to equity falling from 43.4% at FY12 to 32.5% at FY14). The prescribed capital amount ratio (PCA) is now a strong 1.7x.

transforming QBE financial strength chart
Source: QBE Limited Company Presentation

Further details of the results can be found by clicking here to view QBE’s ASX announcements section.

QBE subordinated debt and Tier 1 securities in USD and GBP continue to offer value given the improvement in debt metrics over the past six months.

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