QBE’s strong half year results

QBE’s strong half year results

QBE Insurance Group (ASX:QBE), a top 10 company in the portfolios of The Montgomery Fund and The Montgomery [Private] Fund, has delivered an impressive 2025 first-half result, significantly outperforming analyst expectations across key metrics.

Bolstered by strong investment income, favourable underlying prior-year claims development (PYD), and below-budget catastrophe (CAT) claims, QBE’s results underline its operational strength and strategic progress. Despite challenges such as moderating premium rate increases and elevated large losses in North America, the company’s reaffirmed financial year 2025 (FY25) guidance and robust capital position signal further upside potential.

Key financial highlights

QBE’s first half of 2025 (1H25) results revealed significant beats against UBS and Goldman Sachs (GSe) estimates, as well as Visible Alpha (VA) consensus:

Cash net profit after tax (NPAT): Reached $997 million, 14.5 per cent above UBS estimates ($871 million), 18.4 per cent above VA consensus ($848 million), and 14.2 per cent above GSe ($873 million).

Statutory NPAT: Recorded $1,022 million, surpassing UBS by 14.3 per cent, VA consensus by 18.3 per cent, and GSe by 17.1 per cent.

Insurance profit: Achieved $1,157 million, 9.6 per cent above UBS estimates ($1,056 million) and 12.1 per cent above VA consensus ($1,030 million).

Earnings per share (EPS): Delivered 65.5 cents, well ahead of both UBS (55.8 cents) and VA consensus (55.4 cents).

Dividend: Declared an interim dividend of 31 cents per share, aligning with VA consensus (31.6 cents).

Combined operating ratio (COR): Improved to 92.8 per cent, driven by disciplined underwriting, lower CAT claims, and favourable prior year claims (PYD).

Insurance margin: Reached 13.1 per cent, significantly exceeding estimates.

Investment income: Contributed $788 million, surpassing estimates of $667 million, primarily due to strong equity performance and foreign exchange gains.

Capital position: Maintained a robust Prudential Capital Amount (PCA) ratio of 1.85x (1.81x post-dividend) and Common Equity Tier 1 (CET1) ratio of 1.34x. Debt-to-total-capital ratio stood at 25.2 per cent, within the target range.

Return on equity (ROE) of 19.2 per cent was strong and reflected efficient capital utilisation.

Expense ratio: Rose slightly to 12.1 per cent from 12.0 per cent in the prior corresponding period (PCP), driven by continued investment in QBE’s transformation agenda and wage inflation.

Divisional performance

QBE reported gross written premium (GWP) growth of six per cent to $13.8 billion, in line with consensus expectations. Underlying GWP growth, excluding $200 million in non-core portfolio exits (split evenly across 1Q25 and 2Q25), was a robust eight per cent.

Divisional performance highlights include:

North America

Gross written premium (GWP): Increased 4.3 per cent to $4,847 million, one per cent above estimates, with underlying growth of 10 per cent (eight per cent organic) excluding Crop insurance and non-core run-off.

Combined Operating Ratio (COR): Improved to 97.2 per cent from 97.5 per cent prior corresponding period (PCP), supported by reduced strain from non-core lines and favourable prior year claims development (PYD) in short-tail liabilities. Core business COR was 96 per cent.

Challenges: Elevated large loss activity and business mix shifts led to a 0.5 per cent increase in the ex-CAT claims ratio (ex-reserve adjustments) to 57.4 per cent. Softening premium rates, particularly in property, moderated to 5.7 per cent in 1H25.

Australia Pacific (APAC)

Gross Written Premium (GWP): Declined 4.3 per cent to $2,583 million, six per cent below some estimates, driven by deliberate reductions in consumer portfolios and increased competition in commercial lines. Net insurance revenue fell two per cent, although rate increases of 3.3 per cent provided some support.

Combined Operating Ratio (COR): Significantly improved to 86.8 per cent from 95.6 per cent pcp, benefiting from lower CAT costs, favourable PYD, and moderating claims inflation in short-tail lines.

International

Gross Written Premium (GWP): Grew 11 per cent on a constant currency basis to $6,406 million, three per cent above some estimates, with underlying growth of 11 per cent despite premium rate increases slowing to 0.9 per cent from 4.2 per cent pcp.

Combined Operating Ratio (COR): Deteriorated to 92.5 per cent from 89.2 per cent pcp, impacted by elevated CAT and large loss activity, including California wildfires.

Strategic and operational developments

QBE’s 1H25 performance was underpinned by several key factors:

Underwriting discipline: The 92.8 per cent COR benefited from $479 million in CAT claims, $70 million below the $549 million allowance, despite a $200 million impact from January 2025 Los Angeles wildfires. Favourable prior year claims (PYD) of $91 million was driven by releases in Crop, Compulsory Third Party (CTP), Lenders’ Mortgage Insurance (LMI), and New Zealand/Australia property insurance classes, though offset by an $87 million reserve increase in International’s Lloyd’s portfolios.

Crop performance: Reported a 92 per cent COR, bolstered by 2024 reserve releases, though the current accident year COR was 95 per cent.

Portfolio optimisation: QBE reduced GWP by $200 million in 1H25 due to non-core portfolio exits, with a further $250 million exit drag expected for FY25. This reflects a strategic focus on rightsizing and enhancing profitability.

Premium rate trends: Group-level premium rate increases moderated to 2.1 per cent in 1H25 (from 4.5 per cent in 2H24), with 2Q25 rates further softening to 0.8 per cent (vs. 3.4 per cent in 1Q25). Regional trends showed International at 0.9 per cent, North America at 5.7 per cent, and Australia at 3.3 per cent, highlighting competitive pressures.

Artificial Intelligence (AI) Innovation: The introduction of QBE’s AI-powered underwriter, Ki, enhances underwriting efficiency and decision-making, aligning with the company’s transformation agenda.

Cost savings and restructuring: Ongoing efforts to streamline operations and reduce costs are supporting profitability, though the expense ratio ticked up due to transformation investments.

Claims inflation: Is expected to remain in the low to mid-single digits for FY25, with moderating pressure in Australia Pacific.

Financial Year 2025 (FY25) guidance

QBE reaffirmed its full-year outlook, signalling confidence in sustained performance.

Gross Written Premium (GWP) growth:Mid-single-digit growth on a constant currency basis, despite the $250 million portfolio exit drag.

Combined Operating Ratio (COR): targeting ~92.5 per cent, aligning with broker estimates, and VA consensus (92.4 per cent). The underwriting drag from non-core segments is now expected to be less than $100 million (down from approximately $100 million), with $20 million recorded in 1H25.

Investment yield: Expected to remain stable at circa 3.8 per cet for 2H25, consistent with 1H25 exit yield.

Catastrophe (CAT) allowance: No explicit update on the FY25 CAT allowance of $1,160 million, despite the 1H25 beat.

Valuation and investment case

QBE’s 1H25 return on equity (ROE) of 19.2 per cent, driven by 8 per cent underlying GWP growth, underscores its operational strength. Trading on a forward price-to-earnings (P/E) ratio of 12.4x and with a book value of $7.20, QBE remains attractively valued compared to its historical range of 10x–16x in stable years.

Key factors to watch include:

Competitive pressures: Moderating premium rate increases and competition in commercial lines, particularly in Australia.

Claims and catastrophe (CAT) experience: Elevated large losses in North America and potential volatility from events like the LA wildfires.

Macroeconomic factors: Global capital inflows into underwriting, short-term interest rates, reinsurance cycles, and AUD/USD fluctuations.

Capital management: Potential for capital returns, though likely deferred to the full-year result.

Conclusion

QBE’s 1H25 results reflect a combination of strong financial performance, disciplined underwriting, and strategic progress. While challenges such as moderating premium rates, large loss activity in North America, and portfolio exits warrant monitoring, QBE’s robust capital position, AI-driven innovation, and reaffirmed FY25 guidance position it for continued growth. With a compelling valuation and a focus on enterprise customer service, cost efficiencies, and profitable expansion, we believe QBE offers significant upside potential in 2025 and beyond.

APPENDIX:

Key insurance metric definitions:

These terms are commonly used to evaluate how well an insurance company is performing financially and operationally.

  1. Gross Written Premium (GWP)

Gross Written Premium (GWP) is the total amount of money an insurance company collects (or is owed) from customers for insurance policies written during a specific period, before subtracting any costs like reinsurance or commissions. It represents the revenue from selling insurance policies.

Imagine you run a lemonade stand; GWP is the total money customers agree to pay for all the lemonade they order in a month, whether they’ve paid you yet or not. For QBE in 1H25, GWP was $13.8 billion, meaning that’s the total value of insurance policies they sold in the first half of 2025.

GWP shows the size and growth of an insurance company’s business. Higher GWP means they’re selling more policies or charging higher premiums, which can lead to more revenue.

However, it’s “gross” because it doesn’t account for costs like reinsurance (where the insurer pays another company to take on some risk) or claims. So, a high GWP doesn’t guarantee profit – it just shows the scale of the business.

For QBE, GWP grew six per cent year-on-year, but underlying growth (excluding non-core portfolio exits) was eight per cent, indicating strong demand for their policies in key markets like North America and International, despite some deliberate reductions in Australia Pacific.

Context in QBE’s 1H25 Results:

QBE’s $13.8 billion GWP was in line with expectations, but growth varied by region: International GWP grew 11 per cent to $6.4 billion, North America by 4.3 per cent to $4.8 billion, while Australia Pacific fell 4.3 per cent to $2.6 billion due to portfolio exits and competitive pressures.

Moderating premium rate increases (2.1 per cent in 1H25 vs. 4.5 per cent in 2H24) and a $200 million reduction from non-core exits show QBE is strategically refining its business to focus on profitable segments.

GWP is a measure of how much business an insurer is writing. For QBE, strong GWP growth in certain regions, combined with their low COR (92.8 per cent) and high insurance margin (13.1 per cent), suggests they’re not just selling more policies but doing so profitably

  1. Combined Operating Ratio (COR)

The COR is a percentage that shows how much money an insurance company spends to cover claims and operating costs compared to the premiums it collects. It’s a key measure of an insurer’s underwriting profitability.

Imagine you run that lemonade stand. For every $100 you earn from selling lemonade, the COR tells you how much you spend on ingredients (like lemons and sugar, which are like claims) and running the stand (like rent or wages, which are like operating expenses). A COR of 92.8 per cent (like QBE’s in 1H25) means the company spent $92.80 for every $100 it earned from premiums, leaving $7.20 as underwriting profit.

A COR below 100 per cent means the company is making a profit from its core insurance business (underwriting).

A COR above 100 per cent means it’s losing money on underwriting and needs other income (like investments) to stay profitable.

Lower CORs are better, as they show the company is efficient in managing claims and costs.

  1. Insurance profit

Insurance profit is the money an insurance company makes from its core insurance activities, including premiums earned minus claims paid and operating expenses. It may also include other related income, like fees, but excludes investment income.

Going back to the lemonade stand, insurance profit is the money left over after you pay for ingredients and running costs, but before you count any extra money you made from, say, investing your savings. For QBE in 1H25, insurance profit was $1,157 million, meaning their core insurance business was highly profitable after covering claims and expenses.

Insurance profit shows how well the company’s main business – selling insurance policies – is performing. A higher insurance profit means the company is good at pricing policies, managing claims, and keeping costs under control.

  1. Insurance margin

The insurance margin is a percentage that measures insurance profit as a proportion of the premiums earned. It shows how much of each dollar of premium turns into profit from the insurance business.

If your lemonade stand makes $10 profit for every $100 in sales, your margin is 10 per cent. For QBE, a 13.1 per cent insurance margin in 1H25 means that for every $100 in premiums they collected, $13.10 was profit from their insurance operations (after paying claims and expenses).

A higher insurance margin indicates a more profitable insurance business. It reflects the company’s ability to charge enough for policies while keeping claims and costs low. It’s a key indicator of financial health in the insurance business.

  1. Expense ratio

The expense ratio is the percentage of premiums that goes toward operating costs, like salaries, rent, marketing, and technology, but not claims. It’s one part of the COR (the other part being the claims ratio).

Back to the lemonade stand: if you spend $12 on wages and supplies (not ingredients) for every $100 you earn, your expense ratio is 12 per cent. For QBE in 1H25, the expense ratio was 12.1 per cent, meaning $12.10 of every $100 in premiums went to running the business (e.g., paying staff, investing in tech like their AI underwriter Ki, or other costs).

A lower expense ratio means the company is more efficient, spending less to operate. A rising expense ratio (like QBE’s, up from 12.0 per cent to 12.1 per cent) might signal increased spending on things like technology or wages, which could be good (if it improves efficiency long-term) or bad (if costs are getting out of control).

How they work together

The COR is made up of the claims ratio (money spent on claims divided by premiums) plus the expense ratio. For example, QBE’s 92.8 per cent COR includes a 57.4 per cent ex-CAT claims ratio (ex-reserve adjustments) and a 12.1 per cent expense ratio, with other factors like reserve adjustments making up the rest.

Insurance profit and insurance margin show the actual profit (in dollars or as a percentage) from underwriting after accounting for these costs.

A company like QBE aims for a low COR (under 100 per cent) and a high insurance margin to maximise profitability, while keeping the expense ratio in check to stay efficient.

Real-World Context from QBE’s 1H25 Results

QBE’s 92.8 per cent COR was better than expected, showing they spent less on claims and costs than analysts predicted, helped by lower-than-expected disaster claims (e.g., $479 million vs. $549 million budgeted).

Their $1,157 million insurance profit and 13.1 per cent insurance margin highlight strong profitability from their core business, even with competitive pressures.

The 12.1 per cent expense ratio ticked up slightly due to investments in technology (like AI) and wage inflation, but it’s still reasonable, showing QBE is managing costs while modernising.

In short, these metrics explain how well QBE is balancing the money it earns from premiums with the costs of paying claims and running the business. Their strong 1H25 results suggest they’re doing this effectively, making them a solid performer in the insurance world.

Disclaimer

The Montgomery Fund, The Montgomery [Private] Fund, and Australian Eagle Trust owns shares QBE Insurance. This article was prepared 8 August 2025 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to QBE Insurance, you should seek financial advice.

INVEST WITH MONTGOMERY

Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.

Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances. 

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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