Global insurance giant QBE has warned climate change poses a material threat to its business and the entire economy as its chief executive Pat Regan said premiums were at risk of becoming too high in areas exposed to repeated, extreme weather.
The comments came after the insurer posted a statutory profit of $550 million, up 41 per cent from the prior year. Shares in QBE rose 4.3 per cent to close at $14.76, their highest level in more than five years.
The company booked earnings per share of 62 cents, compared to 43 cents last year. It declared a 30 per cent franked final dividend of 27 cents.
Mr Regan said there had always been parts of the world that were difficult to insure. But as floods and fires become have dominated headlines this summer, this risk was increasing across “swathes of Australia” and could potentially price out customers from home and business property insurance.
He said climate change was a “big topic” in the sector, requiring the insurance giant to “up its game on a number of fronts”. QBE boosted its reinsurance program for catastrophic events to $2 billion in a process that would be reassessed each year, he said.
“What that means is you could have a one-in-200-year storm and we’d be protected,” Mr Regan said.
“Whatever your more broad thoughts on climate change are, the evidence is clearly there that the frequency and severity of weather events is increasing over time,” he added.
“The evidence is there for all to see that the amount of weather events globally, not just in Australia, is consistently rising and most of the worst years on record have happened in the last 10 years.”
“The most prone ones [areas] are the ones we see in the news frequently,” Mr Regan said, referencing the Queensland floods and east coast fires.
The insurer reported a one per cent drop in revenue to $22.6 billion in 2019. During the year QBE sold off a suite of assets including its insurance operations in Indonesia and the Philippines, Australian livestock-in-transit businesses and personal lines business in North America.
In December, QBE announced a profit downgrade following an especially wet spring in North America that saw hail, sleet, frost and snow ruin crops in the region, causing the company’s underwriting activity to become unprofitable.
In a statement filed alongside the results, Mr Regan said tensions in the global economy from low economic growth and protectionist trade policies were impacting the company.
The group is investing in artificial intelligence technology to improve its underwriting and claims processes.
QBE said its bottom line was also affected by the British government’s decision to increase the amount paid out to people who are seriously injured in accidents, known as the Ogden discount rate. In July last year, the UK government reset the rate’s calculation in a move that is likely to cost the insurance industry millions and could lead to higher motor insurance premiums. The move was berated by the insurance sector.