January 22, 2018 / 10:49 PM / a month ago

UPDATE 3-Australia's QBE sees record $1.2 bln loss on catastrophes

* QBE announces second downgrade since October

* CEO: company will be smaller, puts LatAm business up for review

* Shares recover after falling 4.7 percent on news (updates with closing chare price)

By Paulina Duran

SYDNEY, Jan 23 (Reuters) - Australia’s biggest insurer QBE Insurance Group flagged a surprise record annual loss of about $1.2 billion, battered by payouts related to massive California wildfires, storms in Australia and Hurricane Maria.

In addition to what it called unprecedented costs for catastrophes, earnings were also set to take a hit from a write-off on its North American business and a poor performance in emerging markets, it said, adding that was going to conduct a strategic review of its Latin American business.

“You should expect that QBE going forward is smaller, a little bit more focused and less complex than the QBE today,” Chief Executive Pat Regan said in a statement.

It was the company’s second profit downgrade since Oct. 3, when it flagged a $600 million pre-tax charge and compares with an average analyst estimate of net profit of about $270 million for the year through December.

Payouts in the wake of Hurricane Maria, Puerto Rico’s worst disaster in 90 years, California’s largest wildfires on record and major storms in Australia added about $130 million to QBE’s net costs of catastrophes.

It will also log an impairment charge of $700 million on less optimistic assumptions used to calculate the value of goodwill for its North American business.

QBE’s stock dropped as much 4.7 percent after the announcement before recovering to close 0.6 percent lower to A$10.43. The broader market rose 0.7 percent.

The company said the catastrophes would impact its combined operating ratio, or COR - an industry term denoting the percentage of claims payouts against premium income -- to be about 104 percent, up from its previous target range of 100-102 percent.

The higher the figure, the greater the payouts versus premium income -- and the bigger the burden on the insurer.

QBE said its COR target range in fiscal 2018 was between 95.0 percent to 97.5 percent.

The company’s intentions to shrink contrasts with the growth plans of global rivals. Zurich Insurance last month acquired Australia and New Zealand Banking Group ’s life insurance arm, and Hong Kong-listed AIA Group bought Commonwealth Bank of Australia’s insurance unit in September.

QBE will release its full-year results on Feb. 26, when it will also reveal whether the losses will affect a planned buy back and dividend payments, Regan said. ($1 = 1.2517 Australian dollars) (Reporting by Paulina Duran in Sydney. Additional reporting by Aditya Soni in Bengaluru; Editing by Malcolm Foster)

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