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QIC Group posts a net profit of USD 106 million for the first half of 2018 – Improved underwriting performance reflects portfolio shift to lower volatility business

QIC Group posts a net profit of USD 106 million for the first half of 2018 – Improved underwriting performance reflects portfolio shift to lower volatility business

Jul 25, 2018 (0) comment

Gross written premiums for the half year reach USD 1.8 billion

Qatar Insurance Company (QIC), the leading insurer in Qatar and the Middle East North African (MENA) region reports a net profit of USD 106 million for the first half of 2018. The MENA markets continued to produce stable premiums with underwriting profitability, weathering unabated geopolitical headwinds. At a slowing pace, given the non-renewal of underpriced business, QIC’s international operations further expanded in select low volatility classes. Compared with the first half of 2017, the Group’s gross written premiums expanded by 5% to USD 1.8 billion. Including reserve additions related to some older contracts in discontinued segments of business reported in the previous quarter, QIC reports a combined ratio of 100.5% in the first half of 2018, against 101.5% in the same period of the previous year. Excluding any prior-year reserve developments, the underlying combined ratio came in at a healthy 98.8%, commensurate with the low-volatility nature of QIC’s book of business.

Commenting on the financial performance for H1 2018, Mr. Khalifa Abdulla Turki Al Subaey, Group President & CEO of QIC Group stated, “QIC is making excellent progress in repositioning its international book towards areas of lower volatility. The most recent global treaty renewals in April, June and July and the disappointing rate developments have confirmed our bearish view on the prospects of traditional low-frequency high-severity business. Our earlier decision to de-emphasize volatility has proven right.”

He further continued, “The Group’s outlook for the remainder of the year is cautiously optimistic. Our exposure to the geopolitical situation in the Middle East and the vagaries of global re/insurance pricing is relatively moderate. QIC’s very strong risk-based capital adequacy, in combination with the scale and diversification of our business portfolio, will underpin the Group’s resilience going forward.”

Overview of key financial results

Figures, in USD million H1 2018 H1 2017
Gross written premiums 1,806 1,714
Net written premiums 1,549 1,369
Net underwriting result* 91 72
Non-life combined ratio 100.5% 101.5%
Consolidated net profit 106 139
Earnings per Share (in USD) ; 2017 restatedy 0.30 0.43
Net investment result 112 155
H1 2018 Q4 2017
Total assets 10,192 9,542
Market capitalization 3,110 3,962
Shareholders’ equity 2,106 2,203

*Net underwriting result is defined as net earned premium reduced by the sum of (i) gross claims paid, (ii) reinsurance recoveries, (iii) movement in outstanding claims, (iv) net commission expense, and (v) other insurance income.

Financial performance

In H1 2018 QIC recorded growth in gross written premiums (GWP) of 5% to USD 1.8 billion, compared with 14% in the same period of the previous year. This reduced pace of expansion is attributable to the non-renewal of a portion of the Company’s international business due to pricing inadequacy.

The Group’s international carriers, namely Qatar Re, Antares and QIC Europe Limited (QEL) posted GWP growth of 9% to USD 1.3 billion. QIC’s domestic and MENA operations, driven by the Company’s Life and Medical insurance subsidiary, QLM, headquartered in Doha, remained stable. The Group’s international subsidiaries in Bermuda, the UK and Malta accounted for approximately 74% of QIC’s total GWP, compared with 71% in the first half of 2017.

Investment income dropped from USD 155 million in H1 2017 to USD 112 million in H1 2018. The 27% y- o-y decline is mainly attributed to certain one-off investment gains booked in H1 2017. Further reclassification of certain types of investment securities following the adoption of IFRS 9 from 1 January 2018 resulted in increased mark-to-market losses in H1 2018.

QIC’s current investment return amounted to an annualized 4.9%, compared with 7.0% for the same period of 2017. QIC’s investment performance remains unrivalled by any of its peers.

The Group’s net underwriting result increased to USD 91 million, compared with USD 72 million for the same period last year. QIC, in the previous quarter, recorded negative reserve developments on some older contracts in areas of business that are no longer within the company’s risk appetite and have been discontinued accordingly. In addition, QIC continued to apply its recently adopted strengthened reserving governance and philosophy, resulting in a more cautious view of ultimate loss projections and a slower release of prior-year IBNR reserves.

QIC reported a combined ratio of 100.5% for the first half of 2018 compared with 101.5% in the same period of the previous year. The improved combined ratio compared to the previous quarter (101.6%) shows that negative reserve developments are abating. On a normalized basis, excluding any prior-year reserve developments, QIC’s combined ratio came in at a healthy 98.8%, commensurate with its overall book of business and the ongoing shift towards lower volatility exposures. Low-severity high frequency business now accounts for about 43% of QIC’s total underwriting portfolio.

Overall, the Group’s net profit for H1 2018 stood at USD 106 million, compared with USD 139 million in the same period last year.

Operational efficiency

During the reporting period, QIC further improved its already exceptional operational efficiency. In the first half of 2018 the administrative expense ratio for its core operations came in at 6.3%, down from 7.9% in the same period of the previous year. The Group continues to reap the benefits from its ongoing endeavor towards process efficiencies and automation.

In the same context of operational streamlining QIC announced in June 2018 its intention to suspend the writing of all new and renewing facultative business from Qatar Re’s branch office in the Dubai International Financial Centre. Distribution throughout the MENA region will continue to be provided by the QIC Group’s existing operations in Doha, Dubai, Oman and Kuwait.

Ratings developments

Earlier in July, Standard & Poor’s affirmed QIC’s financial strength rating of A/Stable, referring to the Company’s “strong business and financial risk profiles, its scale, diversified premium base (by geography and product), and ability to post good results”.

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