Asia Pacific Operations business review

Following the formation of Asia Pacific Operations in August, the newly formed executive team has implemented plans to improve underwriting performance through more robust risk selection, pricing and underwriting standards. Efficiency initiatives have also been implemented to reduce costs in 2018.

Jason Brown
Chief Executive Officer   •   Asia Pacific Operations

Gross written
premium (US$M)


3% from 2016 1
Net earned
premium (US$M)


6% from 2016 2
result (US$M)


127M from 2016
Insurance (loss)
profit (US$M)


127M from 2016
operating ratio 3


2016 95.6%
Insurance (loss)
profit margin


2016 5.5%
  1. Down 3% on a constant currency basis.
  2. Up 7% on a constant currency basis.
  3. Combined operating ratio adjusted to exclude the impact of changes in risk-free rates used to discount net outstanding claims.

2017 Overview

Asia Pacific’s underwriting profitability deteriorated significantly during 2017, reflecting the competitive market landscape coupled with a lapse in underwriting discipline that led to an increase in exposure to higher hazard risks, particularly in property and marine in Singapore and Indonesia as well as workers’ compensation in Hong Kong.

In response to the poor first half performance, in August 2017 the decision was taken to reposition Emerging Markets as two standalone operating divisions (Latin American Operations and Asia Pacific Operations) to more naturally support and align with the geographical model applicable elsewhere in the QBE Group and to ensure an appropriate level of management focus on remediation initiatives. Our governance and Board structures have been adjusted to support this change. Consistent with this evolution, the leadership team has been strengthened under the new CEO with the appointment of a dedicated Chief Underwriting Officer, an experienced Chief Operating Officer and a new Executive Committee formed to focus on performance improvement plans and operational efficiency.

A review of the business has identified numerous underperforming portfolios and profit improvement plans are in place. Underwriting actions ranging from rate increases to exiting unprofitable sub-segments have been initiated. Underwriting appetite and authorities have been reset and greater rigour put in place on high hazard grade risks to improve underwriting quality. The new Group underwriting standards are also being actively implemented throughout the Asia Pacific Operations. In addition, our plan to exit Thailand has progressed with the sale to a third party agreed and expected to close during the first half of 2018.

Remediation plans have impacted growth with gross written premium down 3% on the prior year. Following an $18 million prior accident year reserve strengthening relating to the Hong Kong workers’ compensation portfolio recognised in the interim result, a comprehensive review of claims reserves identified the need for additional prior accident year reserve strengthening of $19 million during the second half.

Operating and financial performance

Underwriting performance

Gross written premium decreased 3% during 2017. More selective underwriting of Hong Kong workers’ compensation business coupled with remediation actions undertaken in specific loss making commercial lines across Asia Pacific more than offset positive underlying growth in personal lines distributed through agents and strategic partnerships.

Net earned premium, however, grew 6% due to the earning of premium growth in prior financial years coupled with a more efficient reinsurance structure that resulted in lower reinsurance costs.

Asia Pacific Operations recorded a combined operating ratio of 115.3% with an underwriting loss of $100 million, reflecting a heightened level of medium sized attritional claims in property and marine, particularly in Singapore and Indonesia, as well as Hong Kong workers’ compensation which generated an underwriting loss of $53 million. This included a $37 million charge to strengthen prior accident year claims reserves following increased claims frequency and severity in certain industry sub‑segments such as construction as well as the higher incidence of medium-large claims which adversely impacted the attritional claims ratio. Whilst there was a major typhoon in August (Typhoon Hato) and several large property claims, the combined net impact of these claims was not significant overall due to strengthened reinsurance protection.

The Pacific Islands reported a strong underwriting result underpinned by a combined operating ratio of 83.4% compared with 88.9% in the prior year.

With the creation of a standalone Asia Pacific Operations, one-off restructuring expenses were incurred which adversely impacted the 2017 expense ratio.

Although premium growth is likely to be subdued in the near term on the back of remediation initiatives, we remain committed to profitable growth over the long term, underpinned by improved underwriting discipline, operational efficiency and our digital proposition to our customers.

Gross written premium and net earned premium (US$M)
Gross written premium and net earned premium

Combined operating ratio (COR) and insurance (loss) profit margin (IPM) (%)



Combined operating ratio

Underwriting result

2017 2016 2015 2014
Gross written premium US$M 740 765 759 785 727
Gross earned premium US$M 779 748 737 720 643
Net earned premium US$M 653 615 599 593 517
Net incurred claims US$M 439 321 298 306 250
Net commission US$M 145 132 130 122 106
Expenses US$M 169 135 130 127 108
Underwriting result US$M (100) 27 41 38 53
Net claims ratio % 67.2 52.2 49.8 51.6 48.4
Net commission ratio % 22.2 21.4 21.7 20.5 20.5
Expense ratio % 25.9 22.0 21.7 21.4 20.9
Combined operating ratio % 115.3 95.6 93.2 93.5 89.8
Adjusted combined operating ratio 1 % 115.5 95.6 93.2 93.5
Insurance (loss) profit margin % (14.2) 5.5 8.0 7.1 11.0
  1. Combined operating ratio adjusted to exclude the impact of changes in risk-free rates used to discount net outstanding claims. Management-basis results were not reported in 2013.

Premium income

Gross written premium fell 3% to $740 million from $765 million in the prior year.

Premium income contracted in most countries and portfolios due to remediation initiatives including more selective underwriting in Hong Kong workers’ compensation and property and marine coupled with lower retention and new business volumes in Thailand following the sale announcement.

Premium rate reductions averaged 2.3% across Asia Pacific compared with 0.1% in the prior year.

The overall contraction in gross written premium was weighted towards the second half which reduced by 4% compared with the prior year, as remediation actions started to take effect.

Notwithstanding the contraction in gross written premium, net earned premium grew 6% to $653 million from $615 million in the prior year, reflecting the earning of premium on multi-year workers’ compensation business in Hong Kong, strong prior year growth in Papua New Guinea and lower reinsurance costs.

Gross earned premium by class of business
Gross written premium

Claims expense

The net claims ratio deteriorated to 67.2% from 52.2% in the prior year, primarily due to both a higher attritional claims ratio and adverse prior accident year claims development.

Adverse prior accident year development amounted to $35 million compared with $6 million of favourable development in 2016 which added 6.3% to the claims ratio compared with the prior year. Adverse prior accident year development was driven by the $37 million charge in the Hong Kong workers’ compensation portfolio.

The attritional claims ratio deteriorated to 56.0%, up 9.1% from 46.9% in 2016. The review of Hong Kong workers’ compensation reserves resulted in a strengthening of current accident year claims assumptions which contributed 2.7% to the attritional claims ratio deterioration. The ratio was also adversely impacted by a higher incidence of medium sized claims in property and marine classes, mainly in Hong Kong, Singapore and Indonesia, which were partially offset by better claims experience in the Pacific Islands.

Despite Typhoon Hato and several large property claims, the net cost of large individual risk and catastrophe claims reduced to $19 million from $22 million in the prior year, reflecting the benefits of enhanced reinsurance protection.

Commission and expenses

The net commission ratio increased to 22.2% from 21.4% in the prior year, reflecting higher growth achieved with our agency and strategic bancassurance partners as we continue to strengthen our proposition within certain segments such as small medium enterprise (SME).

The net underwriting expense ratio increased to 25.9% from 22.0% in the prior year, primarily reflecting the write-off of deferred acquisition costs due to the contraction in gross written premiums coupled with around $8 million of restructuring costs associated with the separation of Asia Pacific from Emerging Markets.

In targeting a sustainable profitable performance, adjustments to Asia Pacific Operations’ operating structure were necessary to drive cost efficiencies and improve underwriting profitability. We are confident these changes will result in efficiency savings that will emerge in the coming financial years.


2018 will be a year of reset for Asia Pacific Operations. We will continue to reshape the portfolios to improve underwriting profitability, particularly in Hong Kong workers’ compensation and Indonesian and Singaporean marine, while maintaining moderate to high growth in selected profit pools including bancassurance and affinity business as well as professional lines.

Catastrophe and high hazard risks will be actively managed through more disciplined underwriting standards, risk selection and pricing reviews.

Aligning with the QBE Group strategy, we remain focused on strategic initiatives to drive meaningful operational efficiencies, including a leaner corporate overhead structure, and will prioritise investment only in areas capable of achieving appropriate returns.

While market pricing is expected to remain competitive, we will continue to work with our partners to achieve appropriate pricing in QBE’s preferred segments.