QBE’s Horton: Inflation will “stick around” longer than banks predict it will

Inflation is likely to be around for longer than most central banks and governments predict and the industry should be prepared for that, QBE’s chief executive Andrew Horton has warned.

In a wide-ranging interview with The Insurer TV on its Leading Voices programme, Horton voiced his concerns about how long the industry will be seeing the effects of inflation, and the difficulty it will face in adjusting pricing correctly in mid- to long-tail lines of business.

“There are a number of things that are worrying me as we get into 2023,” he told The Insurer TV.

“[Economic] inflation definitely is because I believe inflation is going to be around longer than most central banks probably think it is going to be around or most governments would like it to be, and therefore we’ve got to keep an eye on claims inflation, and the rate we’re getting for our exposure,” he warned.

“In the mid-tail and long-tail lines, it’s quite hard to tell where wage inflation is going to go, where social inflation is going to go, where healthcare inflation is going to go. So, it’s actually quite hard to tell whether pricing is ahead of that. So, I’m definitely worried about that,” he said.

Andrew Horton PQ1

Inflation was one of a number of key industry topics covered with Horton, who took up the reins at the Sydney-headquartered insurer a year ago after stepping down from Lloyd’s carrier Beazley.

In a performance update published this week by the ASX-listed insurer, QBE said it continues to achieve rate increases at or above inflation in most classes.

But despite aggressive central bank action over recent months, QBE said risks associated with the “persistency of inflation remain elevated”, and that it expects to strengthen long-tail reserves in the second half to build resilience for a more prolonged inflationary environment.

Real GDP growth, inflation and interest rates in select regions, 2021 to 2024

Claims tracking

However, according to Horton, there are several teams across QBE dedicated to developing its response to inflation and its pricing practices.

He said the key to getting this right is tracking claims closely to see whether there is inflation within the claims, and cautiously adjusting pricing accordingly.

“We’ve got a number of bright people in the company spending their time thinking about [inflation],” he said.

“We have a number of inflation groups in each of the divisions, an inflation group sitting at the centre [and] we’re trying to track claims closely, because in my view we need to track to see whether we’re seeing inflation within the claims, and then adjust the pricing.”

While being “sensible” in its reserving and tracking of claims, Horton emphasised the importance of consulting as many experts around the world as possible on the topic to support their own research.

“In the longer-tail lines, it’s quite hard to tell on pricing inflation until five, six, seven, eight years down the track […] we will only know with hindsight whether we will have actually got it right.”

Concerns leading to opportunity

Horton joined QBE as CEO in September 2021 following 17 years at Beazley as both CFO and CEO. Speaking to The Insurer TV, Horton reflects on his first year at QBE, how he’s had to adjust his leadership approach, the key issues impacting the industry and his strategic priorities for QBE as he looks forward into 2023.

Andrew Horton PQ2

Keeping with some of the concerns he has, in addition to inflation, Horton cited the looming recession predicted for 2023 as well several geopolitical issues, including the continuation of the Russia-Ukraine conflict.

While political risk is not a large part of QBE’s portfolio, with the company estimating a $75mn charge for exposure to the Russia-Ukraine conflict, Horton hinted during the interview that more may be to come in this space for QBE.

“We’re still keen to try to grow our political risk book, if we can, but as I say, it’s not a large part of the QBE portfolio,” he said.

Watch the full 24-minute interview to hear QBE’s CEO Andrew Horton on:

  • The concerns over inadequate cat pricing
  • Plans for 2023 growth and the remediation of North America
  • Inflation
  • QBE and ESG
  • Differences in culture and management: London vs Australia