European Operations business review

European Operations has produced another strong underwriting result, reflecting our underwriting discipline and improved market conditions in several underlying portfolios.

Richard Pryce

Chief Executive Officer   •   European Operations

Gross written


8% from 2017 1
Net earned


9% from 2017 2,3


$38M from 2017 3
profit (US$M)


$24M from 2017 3
operating ratio 4


2017 95.2% 3
Insurance profit


2017 10.4% 3

2018 Overview

Trading conditions in our London market insurance business continued to improve in the second half of the year whilst conditions in our other insurance businesses stabilised. In contrast, and as reported at the half year, QBE Re did not experience the significant improvement in terms and conditions we anticipated.

Another year of above average catastrophe activity combined with an increase in large individual risk claims across the industry support a continued positive rating environment in 2019. This is especially the case for London Market insurance where we see some competitor repositioning largely due to the increased performance oversight actions being undertaken by Lloyd’s.

European Operations recorded an average premium renewal rate increase of 4.4% compared with a reduction of 0.2% 3 in 2017. Financial lines, UK motor and international property continue to benefit from the strongest rate improvements. During the second half of the year, we experienced further improvement in most marine classes and international casualty.

Our underwriting teams continue to display leadership and discipline with focus on poorer performing portfolios such as international property and financial lines. We remain committed to achieving the pricing required to deliver an acceptable and sustainable risk‑adjusted return on capital.

In response to the Brexit challenge, we now have a fully operational and well‑capitalised insurance and reinsurance company located in Belgium. As a result, we have an enhanced presence across Europe and successfully renewed our existing business in continental Europe at the 1 January 2019 renewals.

We continue to invest in pricing and risk selection tools as part of the Group’s Brilliant Basics program supported by our own team of data scientists. These activities will continue to add value to our business over the coming years. Our customer engagement program continues to expand across the business and the Group EQUITY program will add to this positive momentum in 2019.

Effective 1 January 2019, and as part of the Group simplification initiative, the Group’s newly formed “International” division will include European Operations and Asia. We will report on this basis going forward.

Gross written premium and net earned premium by class of business (%)
Gross written premium and net earned premium by class of business(%)

Operating and financial performance

Underwriting performance

Excluding the impact of risk‑free rates used to discount net outstanding claims liabilities, European Operations’ combined operating ratio improved to 94.8% from 95.2% in the prior year reflecting an improved current accident year claims ratio partly offset by a lower level of positive prior accident year claims development.

European Operations’ attritional claims ratio improved to 46.8% from 49.6% in the prior year. The year‑on‑year improvement reflects targeted underwriting actions coupled with a reduction in reinsurance spend. Furthermore, the attritional claims ratio in the prior year was adversely impacted by weakness in sterling following the EU referendum as well as the Ogden decision.

QBE Re recorded a very strong underwriting performance while the UK and European insurance businesses performed as anticipated. International Markets recorded a less satisfactory result reflecting the poorer trading conditions in London and heightened large claim severity.

European Operations continues to monitor the performance of each portfolio and each territory in detail and independently of the responsible underwriting leaders to ensure that we optimise the risk‑adjusted return on allocated capital.

Insurance profit for the year was $311 million, down 7% from $335 million in the prior year, reflecting a reduced level of positive prior accident year claims development and a lower contribution from risk‑free rates used to discount net outstanding claims liabilities.

Premium income

While headline gross written premium increased by 8% to $4,355 million from $4,049 million in 2017, gross written premium was up 6% on a constant currency basis reflecting the stronger sterling and euro against the US dollar.

Gross written premium growth reflects the improved rating environment and targeted growth in profitable portfolios such as Continental European insurance, life and accident reinsurance and the improved rating environment in several London market portfolios.

Our premium retention levels remain stable and new business levels are down moderately from the previous year. We have renewed our efforts to improve the quality of the new business pipeline and are very wary of poor quality new business opportunities coming to market due to other carriers trying to improve their portfolios.

Net earned premium grew by 9% to $3,505 million from $3,212 million in the prior year but was up 7% on a constant currency basis.

Claims expense

Excluding the impact of risk‑free rates used to discount net outstanding claims liabilities, the net claims ratio increased to 61.5% from 60.5% in 2017, reflecting an improved attritional claims ratio more than offset by a lower level of positive prior accident year development. On the same basis, the current accident year net claims ratio improved to 62.7% from 64.9% in the prior year.

The attritional claims ratio improved 2.8% to 46.8% from 49.6% in the prior year. This reflected underlying improvement coupled with the unwind of the previously flagged post‑Brexit devaluation of sterling and the non‑recurrence of one-off reinsurance expense which suppressed net earned premium in the prior year.

Positive prior accident year claims development fell to $43 million or 1.2% of net earned premium compared with $141 million or 4.4% in the prior year.

In a year where the global insurance industry experienced above average catastrophe activity and a high incidence of large individual risk claims, the net cost remained within European Operations’ planned allowances.

Lower risk‑free rates used to discount net outstanding claims liabilities adversely impacted the underwriting result by $7 million or 0.2% of net earned premium compared with a benefit of $57 million or 1.8% in the prior year.

Commission and expenses

The net commission ratio improved to 18.3% from 19.2% reflecting reduced reinsurance spend and our underwriting teams’ ongoing actions to reduce commissions particularly in the London market.

The expense ratio improved again to 15.0% from 15.5% in the prior year due to continued strict cost control as well as some efficiency and restructuring benefits.

Underwriting result
Adjusted 3
2016 2016
Adjusted 5
2015 2014
Gross written premium US$M 4,355 4,049 4,049 4,076  4,076  4,386  4,526 
Gross earned premium US$M 4,302 4,010 4,010 3,878  3,878  4,338  4,805 
Net earned premium US$M 3,505 3,210 3,212 2,949  3,115  3,454  3,929 
Net incurred claims US$M 2,162 2,024 1,885 1,658  1,826  1,844  2,362 
Net commission US$M 641 615 615 574  574  634  718 
Expenses US$M 527 499 499 516  516  599  626 
Underwriting result US$M 175 72 213 201  199  377  223 
Net claims ratio % 61.7 63.1 58.7 56.2  58.6  53.4  60.1 
Net commission ratio % 18.3 19.2 19.2 19.4  18.4  18.4  18.3 
Expense ratio % 15.0 15.5 15.5 17.5  16.6  17.3  15.9 
Combined operating ratio % 95.0 97.8 93.4 93.2  93.6  89.1  94.3 
Adjusted combined operating ratio 4 % 94.8 99.6 95.2 90.2  90.7  89.7  88.8 
Insurance profit margin % 8.9 6.0 10.4  10.7   10.1  13.4  8.8 
  1. Up 6% on a constant currency basis.
  2. Up 7% on a constant currency basis.
  3. Excludes the one‑off impact on the underwriting result due to the Ogden decision in the UK.
  4. Excludes the impact of changes in risk‑free rates used to discount net outstanding claims.
  5. Excludes transactions to reinsure UK long‑tail liabilities.
  6. Excludes transactions to reinsure Italian and Spanish medical malpractice liabilities.

All amounts in this report are US dollars unless otherwise stated.
For all page number references please refer to the QBE Insurance Group Annual Report 2018 (complete PDF) located in the Download centre.