Despite an initial negative share market reaction to first quarter results, brokers maintain a positive outlook for
-Brokers remain upbeat on
-Management raised gross written premium growth guidance
-Upgrade to the combined operating ratio acceptable, according to Citi
-Rising cash rates are delivering better returns
Despite a negative share price reaction to a first quarter performance update by
While the update for the global commercial insurer suggests to
Global premium rate rises for the company reaccelerated to 10% in the first quarter of the year, supporting 14% (constant currency) gross written premium (GWP) growth, as renewal rates averaged 10% following a rebound in property and higher rate increases for the reinsurance division,
Rising cash rates are also delivering better returns on the insurers
Given around 90% of the portfolio is in fixed income, the broker is reassured by management's assessment of no fallout from recent banking turmoil in the US and
Crop net earned premium (NEP) is expected to rise to
While commodity prices have fallen since the level of pricing determined in the premium,
Overall, FY23 GWP growth guidance was increased to around 10% on the previous corresponding period, up from mid-to-high single digit growth.
In all geographic areas, rate rises were higher in the first quarter by comparison to the first quarter of 2022, with
As inflation trends are unchanged, Jarden suggests higher premiums will drive an improved outlook for the combined operating ratio (COR). The 10% premium rates rise in the first quarter compares to 7.1% in the fourth quarter of FY22 and 7.9% in the previous corresponding period.
Morgans also sees a clear pathway for improved profitability over the next few years, despite being disappointed by management's increased FY23 guidance for the COR to 94.5% from 93.5%.
COR guidance was increased due to higher catastrophe (CAT) claims and a prior year reserve top-up.
The higher combined operating ratio guidance
In agreement with Morgans, Citi also considers the increased COR guidance is a short-term negative.
Unfortunately, QBE was hoping to build a period of consistent results (with lower volatility), with the aim of improving the company's market rating.
While higher current year CAT claims are considered largely beyond
The company will improve on its processes for estimating loss, like for the winter storm Eliot in December last year, which resulted in an adverse development of
Focusing on the positives, Citi suggests the downgrade to COR guidance was acceptable given peer results. Moreover, underlying returns appear to be stable and there is modest investment yield improvement.
Lighten-rated
The average target of six brokers in the database is
Apart from
Outside of the database, both Jarden and
Prior to first quarter results,
Following the results, the broker still considers the company is overvalued, even as industry margins strengthen, due to price increases and better investment income.
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