Investors wipe out QBE by $4.2bn

QBE has flagged a $250 million loss and announced its chairman will leave the company. Source: AAP

INSURER QBE insists it can make its disastrous US business a success after taking a near $1 billion hit and watching its shares plunge.

The company, Australia's largest insurer by market cap, on Monday announced a series of writedowns and provisions on the various north American businesses acquired since 2006.

The group has flagged a $250 million net loss for calendar 2013.

Shocked investors reacted viciously, wiping more than $4 billion from the value of one of the ASX's 20 biggest companies, with QBE shares falling $3.45 or 22.3 per cent, to $12.

The company also announced chairman Belinda Hutchinson would leave in March, to be replaced by fellow director Marty Becker.

Chief executive John Neal described the company as fighting on three fronts in north America.

Most embarrassing was an investigation by actuaries that found QBE had underestimated its provisions in relation to accident insurance claims, which must be increased by $300 million.

Mr Neal conceded he was concerned about the time it had taken to receive the data that led to the large increase in provisions.

It has lost a large chunk of its mortgage insurance portfolio this year, when major client Bank of America substantially dumped its interests.

Finally, the worst drought in 50 years had exposed QBE to US revenue claims related to crop prices and yields.

QBE was heavily involved in acquisition activity in the years before Mr Neal's appointment last year, spending well above $US2 billion in the US alone.

The company will now continue to spend on the north American business, which Mr Neal said needs to be further restructured.

However it would trade profitably next year and outside the North American problems, QBE had met or exceeded margins this year, he said.

It had been a "benign" year for the company in terms of disasters and claims, which is good news for insurers.

"It is disappointing and frustrating that we continue to be hampered by past claims that have spoiled very good progress managing and improving the performances of this business worldwide," Mr Neal said in a teleconference.

However analysts pointed out to him that it was difficult to believe his forecasts of improvement when he had downgraded earnings guidance three times since taking over, with QBE having missed all its profit forecasts since 2009.

Morningstar equities analyst David Ellis described the news as a risk management failure that had damaged the group's reputation in the market's eyes.

Mr Ellis said the question was whether or not the North American remedial restructure announced on Monday was sufficient to clean all skeletons out of the cupboard.

"There are longer term positives: it can benefit from a recovery in US economic activity, higher long term US interest rates and US dollar, the Australian business is performing well," he said.

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