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SYDNEY (Reuters)—Australia's QBE Insurance Group said on Thursday its 2011 net profit would fall by as much as 50% after record catastrophe claims and that it would cut its final dividend, sending its shares down as much as a quarter to the lowest in eight years.
The slide in earnings would mark its second consecutive annual net profit fall and potentially push it to a second-half loss. It last reported a loss in 2001 after the 9/11 attacks.
Investors and analysts were also cautious over the insurer's positive forecast for 2012.
While global insurers such as Chubb Corp., Travelers Cos. Inc. and local rival Insurance Australia Group have seen high claims, QBE was hit harder due to its exposure to both the U.S. and Australian markets that saw record claims from weather events.
QBE, which has made more than 75 acquisitions in 10 years to expand its reach to 50 countries and earn net premiums of $15 billion, was hit by floods and storms in Australia and earthquakes in New Zealand.
It was also buffeted by hurricanes and tornadoes in the Unites States, floods and riots in Europe and floods in Thailand. QBE said its individual risk catastrophe claims allowance for 2011 would be $1.2 billion higher than a year ago.
It cut its insurance margin expectation for the year to 7% to 7.5%, or half its previous forecast at the top end.
"Extremely disappointing. There is an extreme lack of confidence in the management and their capabilities to manage the business," said Simon Burge, chief investment officer at ATI Asset Management, which owns QBE shares.
"Investors will only be circumspect on any guidance they provide now. Despite the weather events, the numbers provided are materially worse than expectation," Mr. Burge said, adding he would review ATI's positions and modelling on QBE.
The final dividend would fall to 25 cents from 66 cents a year ago, QBE said. QBE shares tumbled as much as 24%, eroding its market capitalization by some $4 billion Australian ($4.09 billion). The shares trimmed losses to end 12.7% lower at $11.35 Australian ($11.61).
Analysts, on average, were expecting a net profit rise of 11%, final dividend of 65 cents and an insurance margin of 10.4%, according to a Reuters poll. QBE is scheduled to report earnings on Feb 28.
Thursday's insurance margin forecast compares with a 15% to 18% prediction at the start of 2011, which was itself trimmed to 11% to 14% in August.
"While catastrophes in the second half of 2011 have attracted fewer headlines than those earlier in the year, the frequency of events continued at an unprecedented level," QBE Group Chief Executive Frank O'Halloran said in a statement.
Unrealized losses on the group's fixed interest investment portfolio due to rising credit spreads were around $160 million and unrealized losses from the substantial fall in risk-free rates that are used for discounting outstanding claims provisions were about $200 million, it said.
QBE said it had expected the allowance for large individual risk and catastrophe claims would come in at about 13% of $15 billion net earned premium, but a record level of claims meant the allowance would be 15%.
The group, which has endured a tough two years due to mounting claims and low interest rates hurting its investment portfolio, said it was still positive on the outlook for 2012, with premium increases being achieved in all its key markets.
It forecast a 15% insurance profit margin for 2012. The forecast factored in a 10% allowance of large individual risk and catastrophe claims, versus 15% in 2011 and a yield of 3% for its cash and fixed-interest portfolio compared with 2.1% a year ago.
"Management's optimism remains undimmed with guidance," Credit Suisse said in a note immediately after the profit warnings. "In our view, the global commercial insurance market remains highly competitive and management's targets appear overly optimistic in the light of this announcement."