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QBE shares slide again on yet another profits miss

QBE was forced to issue another profits warning last month, its fourth since John Neal took over as chief executive in August 2012 from the long-serving Frank O'Halloran.

The firm announced on 29 July that its 2014 earnings will be impacted by an A$170mn hit from its Latin American business, primarily due to increased workers' compensation claims in Argentina. Following the news, shares in the Australian insurance group initially fell by 11 percent.

Shares in the ASX-listed firm hit A$10.57 by the end of trading on the day, marking a 35 percent drop over the past year, although they had recovered to trade at A$10.95 by 5 August.

The under-reserving was also blamed on legislation changes in 2012 and 2013, along with deteriorating economic conditions in Argentina.

"As a consequence, the group's combined operating ratio for the first half is now expected to be 96-97 percent, compared with consensus expectations of around 93 percent, and the group's insurance profit margin for the first half is now likely to be 7-8 percent compared with consensus expectations of around 10 percent," QBE said. Net profit after tax for the first half is now expected to be around A$390mn - a decline from the A$477mn reported in the same period a year earlier.

QBE, which earns about three-quarters of its premiums outside Australia and New Zealand, posted a full-year loss of A$254mn in 2013.

Neal - the former Lloyd's underwriter - has suffered a series of setbacks since taking over from O'Halloran in August 2012.

In November 2012 the firm issued a profits warning, in part due to heavy losses from Superstorm Sandy, but principally because of write-downs and reserve strengthening costs of over $1.5bn within its North American operations.

Under the stewardship of O'Halloran, QBE made a series of major US acquisitions, outbidding rivals to acquire a variety of disparate businesses, including Balboa Insurance Company in 2011, Winterthur US and Praetorian Financial Group in 2007, North Pointe in 2008 and RenaissanceRe's crop division in 2010.

While this has given the Australian insurer a significant specialty presence in the world's largest insurance market, it has also caused challenges, not least as the firm grapples with the adequacy of its reserves and regulatory issues surrounding the forced-place insurance market.

QBE's shares plummeted in response, dropping 15 percent at the end of that week, and by 5 December it had fallen by 22 percent.

By the following August the share price had recovered, but a steeper-than-expected 37 percent drop in its half-year profit - reflecting a jump in prior year claims and a deteriorating investment performance - sent its share price falling once again.

And in December 2013, its US operations hit the headlines again, after QBE issued a formal request for trading halt to "allow QBE time to finalise its analysis of information, predominantly in relation to its North American operations".

Three days later, QBE's share price collapsed once again (9 December) as it told shareholders to expect a A$470mn charge because of under-reserving in its US programme units and in its force-placed business, together with a goodwill impairment charge of A$600mn.

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