Latin American Operations business review

A heightened incidence of large individual risk and catastrophe claims coupled with deterioration in legacy portfolios and adverse prior accident year claims development contributed to a disappointing result.

Carola Fratini
Chief Executive Officer   •   Latin American Operations

Gross written
premium (US$M)


0% from 2016 1
Net earned
premium (US$M)


0% from 2016 2
result (US$M)


73M from 2016
Insurance (loss)
profit (US$M)


88M from 2016
operating ratio 3


2016 102.9%
Insurance (loss)
profit margin


2016 5.5%
  1. Up 4% on a constant currency basis.
  2. Up 5% 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

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 with Carola Fratini appointed as CEO, Latin American Operations.

Although the average premium rate increase across the portfolio was 10.1%, up from 4.1% in 2016, pricing conditions remain competitive and vary significantly by country and by class of business. More importantly, significant premium rate increases are necessary to combat typically very high levels of inflation and, in this context, the overall average portfolio premium rate increase is dominated by inflation adjustments to the relatively large Argentine motor business. Pricing conditions deteriorated in Brazil and Ecuador while improving modestly in Colombia, Mexico and Puerto Rico.

During 2017, Latin America Operations experienced a heightened level of claims activity reflecting a combination of increased frequency of medium-sized individual risk and weather-related catastrophe claims (most notably Hurricane Maria), exacerbated by adverse experience in legacy portfolios, particularly Colombian SOAT. On a positive note, corporate and specialty business has continued to grow, and in this context, QBE brand awareness and relations with major distribution partners continue to strengthen.

Recognising the poor underwriting results, some firm remediation actions have already been taken such as the decision to exit our loss-making and volatile Chilean business in May 2017, and a more recent decision to exit the historically unprofitable Colombian SOAT business. At the same time, we are strengthening underwriting controls and discipline, with emphasis on underperforming classes and regions such as non-SOAT business in Colombia, Brazilian travel, Ecuadorian motor and commercial business in Mexico.

Operating and financial performance

Underwriting performance

On a constant currency basis, gross written and net earned premium increased by 4% and 5% respectively, driven by inflationary growth in Argentina and growth in Brazil partly offset by the economic slowdown in Ecuador, the mid-year disposal of the Chilean business and remediation initiatives more broadly.

Latin America reported a combined operating ratio of 113.2%, up significantly from 102.9% in the prior year. The deterioration in the underwriting result reflected adverse prior accident year claims development in the Colombian liability portfolio coupled with heightened large individual risk and catastrophe claims activity and a deterioration in the attritional claims ratio.

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 1 2014 1 2013 1
Gross written premium US$M 863 867 969 1,006 1,098
Gross earned premium US$M 835 840 950 986 1,060
Net earned premium US$M 715 713 837 876 902
Net incurred claims US$M 461 400 490 572 519
Net commission US$M 186 180 206 232 240
Expenses US$M 162 154 171 144 161
Underwriting result US$M (94) (21) (30) (72) (18)
Net claims ratio % 64.5 56.1 58.5 65.3 57.5
Net commission ratio % 26.0 25.2 24.7 26.5 26.7
Expense ratio % 22.7 21.6 20.4 16.4 17.8
Combined operating ratio % 113.2 102.9 103.6 108.2 102.0
Adjusted combined operating ratio 2 % 113.1 102.9 103.6 108.2
Insurance (loss) profit margin % (6.9) 5.5 2.7 (0.5) 0.8
  1. Excludes Argentine workers’ compensation business which was sold in 2015.
  2. 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

Latin America’s gross written premium was broadly flat at $863 million compared with $867 million in the prior year.

On a constant currency basis, gross written premium increased by 4%, well down from the 16% constant currency growth recorded in 2016, and below the 10.1% average premium rate increase experienced.

Strong inflationary growth in Argentine motor and to a lesser degree Brazil, was largely offset by a significant recession-driven contraction in Ecuador and the mid-year sale of the Chilean operation which impacted the top-line by $24 million. Premium income was broadly flat in Mexico, Colombia and Puerto Rico. Growth in Brazil was driven by motor affinity business with a new partner as well as commercial lines.

Net earned premium increased 5% on a constant currency basis, reflecting gross written premium growth coupled with reduced reinsurance spend following the renegotiation and restructuring of the Group’s reinsurance protections effective 1 January 2017.

Gross earned premium by class of business
Gross written premium

Claims expense

Latin America’s net claims ratio deteriorated to 64.5% from 56.1% in the prior year, reflecting adverse prior accident year claims development coupled with heightened large individual risk and catastrophe claims activity and a deterioration in the attritional claims ratio.

The underwriting result was impacted by $14 million of adverse prior accident year claims experience which increased the net claims ratio by 2.0%, primarily due to Colombia (SOAT and liability business), compared with $11 million of favourable development in 2016 which benefited the claims ratio by 1.6%.

The attritional claims ratio increased to 53.6% from 51.9% in the prior period, largely due to adverse experience in Colombian SOAT, increased frequency of medium-sized claims in Mexico and competitive pricing pressure in Brazilian travel insurance and Ecuadorian motor, partially offset by improvement in the Argentine motor portfolio.

The combined net cost of large individual risk and catastrophe claims increased to 3.5% of net earned premium from 2.2% in the prior period. Catastrophe claims increased to 2.7% of net earned premium from 1.9% a year earlier, notwithstanding 2016 including significant costs associated with the earthquake in Ecuador. Catastrophe activity included flood losses in Argentina and Chile (prior to sale), two earthquakes in Mexico and of course Hurricane Maria which devastated Puerto Rico. Large individual risk claims increased to 0.8% of net earned premium from 0.3% in the prior year, most notably due to large fire claims in Mexico.

Commission and expenses

Latin America’s commission ratio increased to 26.0% from 25.2% in the prior year, mostly due to business mix changes and one-off costs related to Brazilian affinity businesses.

The underwriting expense ratio also increased to 22.7% from 21.6% in the prior period, reflecting higher staff costs in Argentina (driven by inflation and mandatory union salary increases) along with one-off provisioning including restructuring costs related to the establishment of a standalone Latin American Operations, doubtful debts, software impairments and property revaluation taxes.


Following the completion of a strategic review, we have decided to exit the Latin American region as part of a broader strategy to simplify the Group’s geographic footprint and improve the quality and consistency of our results.