QBE Insurance Group Limited (QBE) Earnings Call Transcript

Good day, and thank you for standing by. Welcome to QBE Half Year 2026 Results. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Group Chief Executive Officer, Andrew Horton. Please go ahead.

Good morning, everyone. Thanks for joining us today. I'm here with Chris Killourhy, our Group CFO. And we'll spend the next half hour taking you through what is another strong result for QBE. Momentum in the business is positive, and we're on track for another year of sustainable growth, resilient performance and excellent returns. Before we begin, I'll start by acknowledging the traditional owners of the many lands on which we meet today. For me, this is the Gadigal lands of the Eora Nation and recognize their continuing connection to land, waters and culture. I pay my respects to elders past and present and extend this respect to any First Nations people joining us today. Starting on Slide 4 with a snapshot of our results. First half performance was consistent with all our key guidance and targets for 2026. We launched our medium-term guidance in February based around an outlook of durable mid-single-digit premium growth and confidence in sustaining returns in the 15% plus range. For the first half, returns were excellent with a group ROE of almost 18%, representing strength across underwriting and investments. Headline gross written premium growth of 6% was in line with the prior period and consistent with our full year guidance. Underlying growth was closer to 7%, noting the modest remaining impact from noncore exits. We've executed well on our growth plans, driving high-quality growth in our key focus areas. Our combined ratio of 92.8% is in line with our outlook for a full year result of around 92.5%, representing the stability and predictability we strive for. This included favorable prior year development plus better-than-expected catastrophe costs, which underscore the actions we've taken to build resilience. We delivered another exceptional half for investment income at around $830 million. This represented an annualized return of almost 5% and growth of 5% on the prior period. Our adjusted net profit was just over $1 billion, up 4%, and we announced an interim dividend of $0.33, up 6% on the prior period. Disciplined capital management is a core pillar of our strategy, and our balance sheet remains very strong. We completed our first share buyback in several years in April, and we'll continue to use active capital management to drive value for shareholders. Let's turn to Slide 5. I want to open with this slide, which outlines the industry's attractive long-term outlook. The role of commercial P&C has never been more critical. 2026 will mark another year in which a range of global events and structural trends have reinforced a heightened awareness of risk among businesses. Operational resilience is a key objective for our customers who place value on capacity, but also insight, expertise and long-term partnership. These comments are equally evident surrounding the phenomenal investment in global infrastructure, electrification, energy security, data centers and health care. Continued capital investment across these sectors is creating a growing need for specialized insurance solutions. As pricing and claims sophistication have improved across the industry, competitive advantage is increasingly shifting towards those with superior risk expertise, scale and diversification. We are uniquely placed in this regard. We combine breadth, diversification and expertise with presence and ability to connect capital to risk across all major insurance and reinsurance markets globally. This underpins our ability to deliver durable growth while sustaining attractive margins and returns through the cycle. Turning to Slide 6. This year, we're proud to celebrate our 140th anniversary, a remarkable milestone that reflects the adaptability, relevance and resilience of our business. This is a significant milestone for any organization, but particularly so in commercial P&C, where relatively few companies have stood the test of time and supported customers through generations of economic and social change. It's also a unique success story in the Australian context. Very few Australian businesses have successfully expanded internationally and built the scale, reach and diversification that we have today. This slide recaps the journey we've been on more recently. With a series of remedial and foundational portfolio optimization initiatives now behind us, we enter this next chapter from a position of strength. Our focus is now firmly on driving high-quality capital-efficient growth while maintaining strong returns for shareholders. This will include accelerating efficiency through our technology and AI initiatives. To give you some examples, in March, we launched Aurora, a fully automated lead algorithmic underwriting capability, cutting quote to bind from days to under 10 minutes in our British Marine P&I portfolio. We're expanding the capability across other U.K. commercial portfolios in the coming months. In European Motor, we've deployed AI through our claims function. We expect around 25,000 claims will be handled by AI in the coming year. And we're processing over 100 claims daily across 600 claims attributes captured at greater than 94% accuracy. Finally, in our Asian marine book, our AI solutions have led to an 88% reduction in cycle time for claims processing. Over the medium term, we aim to at least double the scale of production agents across underwriting and claims, each compressing loss ratios, accelerating claims outcomes and improving pricing position. So let's move to Slide 7, which unpacks our growth for the period. This half, we extended our track record of sustainable volume growth, which we believe remains a key differentiator in the local market. Headline ex-rate growth of 6% leaves us well positioned to deliver a full year outcome in the mid-single digits. This growth once again is underpinned by the breadth and diversification of our global business. This is also reinforced by the diversity of our distribution model. We can often access the same risk through multiple channels, including the open market, facilities, reinsurance, third parties and digital platforms. This provides flexibility to not only pursue growth but allocate our capital where risk-adjusted returns are most attractive. Today, the industry narrative surrounding growth is overly focused on softening premium rates. We think this overlooks 3 important factors: premium rate adequacy is attractive across the vast majority of lines, a portfolio as diverse as ours is operating across multiple product and market cycles simultaneously, and there are structural growth opportunities across sectors, including infrastructure, cyber, facilities, data centers and energy. I think this is clear in our growth this period, which was driven by many focus areas for the group. Our cyber proposition is now well established with key partners and complements many of our existing strengths and relationships. We're likely to end the year with cyber premiums around $600 million and with industry premiums expected to double or triple in the next few years, cyber can comfortably grow, whilst remaining a relatively small part of our portfolio. QBE Re and QPS have maintained strong momentum, which I'll touch on shortly. We saw excellent growth across many Lloyd's portfolios this half, particularly across marine and political lines where developments in the Middle East created opportunities. Finally, in North America, we've combined the adjacencies discussed previously into a single segment here. This is a mix of more mature businesses, including specialty casualty and construction, alongside more recent builds in specialty health care and environmental. Collectively, these segments will contribute approximately $600 million in premium this year, continue to deliver strong growth while broadening the reach of our franchise. Moving to segments we didn't grow. We spoke in our first quarter update about an intentional reduction in A&H. While rates were up significantly, we didn't target new business, whilst we focus on restoring margin. Also in North America last year, we stopped writing a workers' comp program no longer aligned with our service-led strategy. The A&H volumes and this workers' comp program had a disproportionate impact on the first half. Finally, within large stand-alone property, we've been more selective given current dynamics. While there are still attractive opportunities in property, given the diversification of our business, we're under no pressure to chase the more competitive pockets of the market. So moving on to Slide 8. This slide shows the evolution of our portfolio mix. The 3 key shifts in recent years have been the decline in stand-alone property exposure, which we've spoken at length about, a desire to build the profile of our reinsurance business, QBE Re, and the growth in our facilities business, QBE Portfolio Solutions. We thought we'd share some color on these 2 segments today. QBE Re has grown well from around 10% of group to around 15% and is now a $4 billion business for us. It gives us access to a material profit pool within the wider industry. And importantly, we look to participate in ways that complement our insurance business, expanding our regional footprint and adding important diversification. It's often a much more effective pathway to enter a new market through partnership with a leading carrier as opposed to building a new insurance offering. We focused on building better balance in the portfolio, striving for roughly even balance across property, specialty and casualty. And you can see the extent to which we've reduced property exposure in recent years. We've also shifted toward more proportional profit share or quota share business rather than excess of loss. This is now the majority of what we do and ultimately reduces volatility, generating more stable earnings. Much of the industry reinsurance rate commentary is geared around what is happening in property excess of loss rates with a general focus on North America. This is a relatively small part of our book. And to highlight this point, we expect rate for QBE Re to be roughly flat this year after cumulative rate increases of around 65% since 2017. Our market position is attractive. Beyond the 4 major reinsurers, we stand out as having capability across most products, strong representation in all key hubs and have a 1- to 2-notch credit rating advantage relative to many nonmajor reinsurers. Our strategy is centered around becoming more relevant to a fewer number of strategic partners, building deeper relationships and offering valuable panel diversification. Moving to QPS. In 2026, we'll have gross written premium of around $1.8 billion in our Portfolio Solutions business. This represents broker facilities where we provide a pre-committed level of capacity to a clearly defined broker portfolio. It also includes certain MGAs and platforms which we support. These facilities are sometimes spoken about as market trackers, but the products are more sophisticated. We are the lead partner on many of our facilities. We work closely with the broker to codesign the facility and as a lead get to define the terms, structure and establish how and when the capacity attaches. We're the clear market leader in this space and have participated right throughout the journey. We believe the segment has matured and expect a continued structural shift toward facilities, which offer more efficient placement for brokers and customers, can reduce costs for customers and in our experience, have delivered attractive returns. Particularly in syndicated or layered markets, there can be significant inefficiencies in needing to engage multiple follow markets. Importantly, the underwriters' role remains unchanged, defining the risk, price and terms is still critical, although many follow markets contribute little to this process. The final point to note is the access to data we get in taking lead roles. We now see pricing, claims and terms data for a broad cohort of business. And in the age of LLMs, this gives us valuable insights for our open market underwriting. In both instances, QBE Re and QPS performance has been very strong. This reflects the balance and diversification we've built, where particularly for QPS, our facility by definition is highly diversified, which gets further enhanced through participation in multiple facilities. For instance, some target specialist niches such as cyber, marine and political violence, while others capture structural growth opportunities in construction, parametric insurance and AI liability. Turning to Slide 9 on capital. Our approach to capital allocation is outlined here. We'll always hold a preference to grow the business, provided returns clear our hurdle rate. This is the case for the vast majority of our portfolio today. We have a dependable 40% to 60% dividend payout ratio and remain committed to returning any excess capital beyond the dividend. This was reinforced with our first buyback in several years, which we completed successfully in April. This slide lists some of the actions we've taken to improve capital efficiency this year, which is a key focus for us moving forward. We have a series of initiatives, which we think can drive real value as we work towards a more capital-light model. In February, we spoke about the launch of our first sidecar attaching to the QBE Re casualty portfolio, plus the addition of a cat bond into our group property program. These initiatives not only support capital efficiency, but also our cost of capital and earnings stability. We also spoke in February about the sale of our trade credit and surety business. This was a capital-intensive business, which is quite correlated with macro cycles. The transaction is on track to close in the second half. And this morning, we've also agreed terms to a loss portfolio transfer for over $1 billion of reserves. The transaction covers North America and international reserves associated with segments we've exited, which will drive a release of capital. Collectively, these actions will have a positive and meaningful impact on our capital efficiency plus enhanced returns. With that, I'll pass over to Chris.

Thank you, Andrew, and good morning, everyone. We've made a positive start to 2026 and delivered an excellent set of results, culminating in a very strong return on equity of 17.7%. These results reflect the continued benefit of actions taken to improve portfolio quality, build cat resilience, strengthen reserves, optimize capital allocation and drive greater efficiency across the group. While there is more work to do, I'm confident the business is well positioned to continue delivering sustainable growth and industry-leading performance through the cycle. Turning first to the result on Slide 11. Gross written premium grew 6% to $15 billion. The combined ratio was 92.8%, in line with the prior period and on course to deliver our 92.5% outlook. The result was supported by cat resilience, the positive runoff of prior year reserves and robust current year underwriting performance. Investment income was around $830 million, implying a return of 4.6% on an annualized basis. The net impact from ALM activities has been broadly neutral and our tax rate was 25%, consistent with our actual tax rate. Profit for the half was up at around $1 billion. That's an increase of 4% on the prior year. And as mentioned, return on equity was an excellent 17.7%, comfortably above our medium-term guidance of 15% plus. Our capital position remains very strong with a PCA multiple of 1.82x, and the dividend of AUD 0.33 per share equates to a first half payout ratio of around 33%. Consistent with prior years, our distribution is a little lower in the first half, and we'll true this up with a final dividend at the end of the year. Turning now to growth on Slide 12. Premium growth has been solid. Group GWP growth of 6% was broadly consistent with the prior period and in line with outlook. The ex rate growth of 6% has been delivered at a time where we also pulled capacity back in areas where returns did not justify the deployment of capital. As Andrew touched on, at this time, growth does continue to be weighted towards the Northern Hemisphere, highlighting the strength of our global brand and driven by strong contributions from Crop, QBE Re, Portfolio Solutions, our Lloyd's portfolios, cyber and adjacencies in North America. These are all portfolios where we continue to see attractive opportunities and strong returns. Here in Australia, although aggregate GWP has remained broadly stable, we saw positive momentum in CTP and consumer, supported by distribution initiatives launched in 2025, alongside continued growth in the direct channel. In North America, Crop delivered particularly strong growth of 17%, which we'll come back to in more detail shortly. Excluding crop, given the exited workers' comp program referenced by Andrew, alongside a temporary contraction in A&H volumes, GWP reduced by 12%. Adjusting for the exited program and noncore business, North America GWP remained broadly stable against the prior half. Turning now to pricing. Overall, premium rate adequacy across the group remains strong with the majority of our portfolio being premium adequate or better. Premium rates are broadly stable and the majority of the move from 2% in the prior period can be explained by property. Excluding commercial property in our Lloyd's business, premium rates increased by around 3%. While many Lloyd's portfolios are more stable versus the prior period, rates in commercial property are down further following another strong year for profitability. As Andrew mentioned, we're being selective in how we participate in certain property markets, and where pricing heads into 2027 will be a key area of focus and depend a lot on cat activity over the coming months. I'm going to turn now to Slide 13 to talk about the group's underwriting performance. Underwriting performance remains solid with a combined ratio of 92.8%. Catastrophe costs were around $450 million, that's comfortably below allowance and around $30 million less than the prior period. That's another resilient outcome in a half, which includes a $75 million impact associated with conflict in the Middle East. The impact from the Middle East relates primarily to political lines property exposure in neighboring regions and includes IBNR. The result also includes favorable prior year development of around $110 million. That's modestly higher than the prior period and reflects a consistent and prudent reserving strategy where we look to hold long-tail reserving assumptions for at least 3 years before recognizing any good news. Whilst this does drive a negative bias on the current year, it should contribute to more consistent prior year releases as the approach matures. The ex-cat claims ratio was relatively stable versus the prior period. The ex-cat continues to absorb industry-wide claims inflation impacting A&H and referenced in February. With only 2 quarters of experience, it's clear that claims inflation remains elevated. Though ultimately, it's too early to make a definitive decision for the year, we've assumed limited improvement on the 2025 full year combined operating ratio over the half. Regardless of where 2026 ends, it's clear that another round of material price increases across the industry is required into 2027. Under AASB 17, we do take an onerous contract provision in the first half. Essentially, this pulls forward an expected full year loss into the half and does serve to inflate our half 1 combined ratio. The ex-cat ratio has also absorbed broader impacts associated with the Middle East. I mentioned the cat allowance of $75 million earlier, but our half 1 result also includes around $50 million of associated large losses. As Andrew referenced, we've seen meaningful growth in certain Lloyd's portfolios, but particularly in marine war markets, premium rating has shifted materially. We're a market leader and have responded to support our customers and partners. We do anticipate meaningful earnings from this business in the second half, which will lead to a more balanced Middle East picture by the full year. Diversification remains at the heart of our strategy to deliver resilient and predictable outcomes. And it's worth pausing to reflect on the various favorable and unfavorable movements across components of the claims ratio, including ex cat, cat and prior year development. Some variance across these metrics is inevitable, and it's important to assess them collectively rather than placing too much emphasis on any single component. I'm going to turn now to expenses. The group expense ratio was 12.4% compared to 12.1% in the prior half. This increase was driven by investment spend in support of our transformation agenda, lower capital credits associated with the Australia CTP business and an increased weighting to a higher expense ratio AUSPAC business as a result of the strengthening Australian dollar. From a headcount perspective, however, we saw an increase of just 1%, and that was driven by international, where we continue to support growth. We expect the full year expense ratio to trend lower over H2. I'm going to move now to Slide 14, as I'd like to touch on cat resilience as cat performance has again been a feature of this half's result. Cat was below allowance in the first half, continuing the trend of cat tracking comfortably below allowance over the past 3 years. This slide shows our probable maximum loss or PML, a proxy for cat exposure, which has now reduced by around 11% since 2023. This contrasts with premium growth of nearly 20% over the same period. We've been able to grow meaningfully whilst reducing catastrophe exposure. Notwithstanding the PML reduction, we've maintained our cat allowance steady, which continues to be set at around the 80th percentile. While that's not an exact science, mathematically, this implies that our allowance should be adequate 8 out of 10 years and indeed, recent experience would seem to support this. We believe, therefore, that our cat performance in part reflects a structural improvement in our portfolio rather than purely a cyclical outcome. Our business model is underpinned by a deliberate strategy of portfolio balance, and we place the same value on earnings generated through cat resilience as we do any other dollar generated in the P&L. The slide also highlights that our maximum event retention has reduced 40% in 2 years, and that's as a result of a reduction in the attachment point for our main cat reinsurance program. I wanted to put these retentions now in some context. In the U.S., it would now take a $75 billion East Coast hurricane to reach our 250 -- sorry, our $240 million maximum retention. In the past 10 years, we've seen only one event, Hurricane Ian in 2022 that would have hit this level. Indeed, at that size, we're taking north of a 1 in 10-year event. For events in Europe or Australia, the likelihood is even more remote. I'm now going to turn to our divisional updates on Slide 15. North America delivered a combined ratio of 97.3%. That's broadly in line with the prior half. But there are a few ups and downs that I'd like to take a moment to unpack. The commercial portfolio continues to perform well, and the crop current year result was broadly steady at 94%. The performance of specialty, however, was, of course, impacted by accidents and health. Rate increases were strong in the high single digits, underpinned by A&H at over 20%, aviation at over 10% and specialty casualty at 8%, with construction and health care only a fraction behind this. Catastrophe costs in North America were materially below allowance and better than the prior year. PYD has been favorable, evidencing the strength of reserves and is largely attributable to releases from crop and a number of commercial and specialty short-tail portfolios. Moving to International. It's been another solid half for this business. That despite allowances, the situation in the Middle East with a combined ratio improving 1 point to 91.6%. Growth momentum remains impressive with ex-rate growth around 11%. And rate overall was modestly negative, really driven by Lloyd's portfolios referenced earlier, which were down mid-single digits. Most other segments, however, were broadly flat. And importantly, across international, terms and conditions are stable and rate adequacy remains attractive. The International has benefited from cat running below allowance, but this will broadly offset some reserve strengthening in our energy portfolio and certain liability classes across Europe. On the topic of European liability, the loss portfolio transfer announced today will address a portfolio which has had persistent strengthening over several years. Finally, on Australia Pacific. GWP was broadly stable compared with the prior period as was rate, which strengthened in the 2% to 3% range. We're pleased with the underwriting result, demonstrating resilience in what was another heavy cat half with significant bushfires in January and numerous storm and flooding events. Favorable prior year development continued with releases in short-tail commercial alongside CTP and LMI. I'm going to turn now to Slide 16 to say a little bit more on crop. It feels an opportune time for an update on our crop business. It's been roughly 2 years since we reset our strategy. Starting with growth, while GWP growth has been very strong, this highlights the impact from product extensions alongside a more modest level of organic growth in the core MPCI book. Product extensions are relatively new feature, which allow farmers to increase revenue protection up to 95% from typical levels of around 75%. While product extensions have been calibrated to favorable economics and indeed performed reasonably well in recent years, it remains a new product. And given our priority of managing uncertainty, we've chosen to seed the majority of growth to the federal fund. Going forward, we expect product extension uptake to moderate and for overall GWP growth to revert to more normal levels. Exposure across our priority versus nonpriority states has now shifted materially, an important change given that the derisked states had weighed on performance in recent years. This change has been driven by not only managing gross exposure, but also increasing our session of nonpriority states to the federal fund. This, alongside the product extension strategy, gives a steady increase in cessions you can see in the chart and ultimately, why crop net insurance revenue growth has lagged GWP growth. We expect cessions to the U.S. fund to remain more stable from here with modest reductions to third-party reinsurers in 2027, resulting in net insurance growth that should begin to mirror or even outstrip GWP growth. We've also reduced our exposure to private products. These products are ancillary purchases like hail coverage sold alongside the MPCI policy. The business tends to be less profitable. And you can see today, we write 40% more MPCI per dollar of hail. The overall portfolio today is materially different to the one we were managing just a few years ago. These actions have improved our confidence in achieving plan and reduce the level of downside risk. Turning now to our investment result on Slide 17. Investment performance remains solid with a return of around $830 million in the first half. This is despite elevated geopolitical and macro uncertainty. Risk assets have returned around 7.2% on an annualized basis, while fixed income returned around 4% in the half. The core fixed income portfolio exited the period at around 4.1%, while futures markets currently imply the fixed income yield will exit 2026 at around 4.3% and total duration remained steady at around 2.5 years. Risk asset returns have been resilient, supported by strong returns across equities and infrastructure assets. We do have a very modest private credit portfolio, which delivered a positive return and is well diversified with highly conservative lending. Funds under management increased 2% to $36.6 billion, while asset mix has remained unchanged with high-quality core fixed income representing 85% of the portfolio. Moving now to our key theme of balance sheet and capital management on Slide 18. It was pleasing to complete our first buyback in several years, returning $450 million to shareholders. Hopefully, this reinforces our recent statements about a highly disciplined and transparent approach to capital allocation. Our APRA PCA multiple was 1.82x at the end of the first half or 1.78x when you adjust for the interim dividend. In the second half, the sale of our trade credit and surety business is expected to complete at an anticipated pretax gain on sale of around $70 million. We also announced a reinsurance transaction this morning, including a loss portfolio transfer covering around $1.6 billion of reserves relating to exited U.S. middle market and workers' comp portfolios, not in prior transactions in addition to a European liability book. The Day 1 cost of the reinsurance transaction is similar to the gain on sale from trade credit at around $80 million pretax, and we booked in the restructuring line of the P&L. In addition to reducing reserve uncertainty, this gives rise to an immediate PCA benefit of around 2 points. The ongoing impact of the transaction is not material. The modest amount of foregone investment income is partially offset by claims discounting benefit and the broader implications of reinvesting that capital into more productive opportunities is also supportive for returns. I'll pause here and hand back to Andrew.

Thanks, Chris. No changes to note on our outlook. We're on track to achieve constant currency gross written premium growth around the mid-single digits. We continue to target a group combined ratio around 92.5%. As you analyze today's result, we suspect some will adjust our first half combined ratio for favorable cat and PYD. We've made some comments this morning as to why wouldn't necessarily -- why I wouldn't necessarily follow that approach. But nonetheless, we provided a simple bridge here to our guidance, touching on the issues Chris noted earlier. Our first half ex cat was overstated by the A&H onerous contract provision. And we think the Middle East impacts in half 1 reflected mainly claims where we see a benefit from material marine war premium in the second half. And finally, we see improvement in underwriting across a number of sales in half 2 and are focused on driving a lower expense ratio. Our medium-term guidance also remains unchanged, where we expect ongoing mid-single-digit growth and returns in the 15% plus range. As we said in February, underpinning this outlook is a view that investment returns track above 3%, which implies an outlook of reasonably stable combined ratio. We'll hold our usual third quarter update on November 27 and look forward to discussing second half performance then. With that, I want to thank you for joining us, and I'll pass back to the operator for Q&A.

[Operator Instructions] First, we have Andrei Stadnik from RBC.

Well done on a solid result. Can I ask, firstly, just around the capital. Just in terms of the 6 percentage points of capital you're highlighting the relief that should come through going forward. Does that equate about AUD 750 million? And is that something you potentially could seek to return to investors in early 2027?

Yes. I mean the 6 points that we've highlighted are a combination of benefits we get from the LPT from a cat bond that we're looking at the moment. I think then in terms of how we look at returning to investors, I think we sort of articulated our capital strategy is the first thing that we will look to do with it is to support sustainable growth. But I think as we said a few times, as and when that is still above our target range, we will continue to look for ways to redistribute that, whether that's through buybacks or other levers.

Yes. And I think we're incredibly consistent on that. So we tend to look at the capital, Andrei, at the end of the year, probably with the November Board, see what the plan for 2027 is going to look like, see what profitability for 2026 is going to look like and then see where our capital position is. As Chris said, any excess, our aim is to return it.

And just double check, that AUD 750 million in terms, is that a reasonable number?

About 6 points.

The 6 points it's going to be -- yes, it's going to be -- that sounds like a touch high, but can just confirm the number.

Yes, Testing your mental arithmetic, this one.

Yes.

Next question is Nigel Pittaway.

First question is on QBE Re. I mean you're saying you've got about $4 billion of premium now. I think there's been sort of comments that there's a target for $6 billion by 2030. So my question was, first of all, is that an aspirational target or a sort of one that you think there's a good chance of achieving? And just also maybe whilst you're sort of answering that, can you comment on terms and conditions and how you're feeling about those and what -- how that would influence any sort of move towards that growth target?

Nigel, thanks for that. Yes, that is our aim. We believe from a position we've got in reinsurance and the depth of customers we have and the breadth of the portfolio that the $6 billion is an achievable target by 2030. But it's sort of linked to the second one. If all markets completely fell off a cliff between now and then, we'd obviously focus on profitability over growth. This point in time, we can see a way to do it. We talked about how property excess of loss has been under a lot of pressure in the first half of this year, but everything else is looking okay. So definitely driving towards a larger QBE Re business and $6 billion sort of puts us into the first division of the premiership of reinsurers, and that's where we want to be.

I think on the point of terms and conditions, although as Andy said, we have seen pressure coming through on rates. What we haven't seen is it translating into challenges on attachment points or broader terms and conditions.

Okay. Secondly, just on the crop, there's about 8.1% of PYD, I understand. What sort of drove that?

s Thanks. We just saw returns improve from the position we took towards the end of last year. Now we have been aiming for being slightly more conservative in our reserving, so we don't actually see the reverse of that of seeing the returns deteriorate. We had a good return when we announced the full year. And it looks like we held a little back because we didn't want to see any deterioration from there, but we saw the return to continue to improve in the first quarter.

Okay. And then maybe just finally, I mean, what caught you by surprise on A&H, given that you say you've got to go again in terms of pricing?

Yes. So what we had last year was -- I think we did try to flag that, Nigel, at the end of the year was where we thought we weren't getting enough rate to cover the claims inflation. So what we saw was claims inflation coming through mainly towards the end of the third and fourth quarter last year. A lot of the business has already been quoted at that point. So we were quoting based on what we've seen. And then when those claims came through, we saw that they were greater than the 20% we were putting through, probably nearer 30%. And therefore, we have a catch-up position in 2026. You also have, to some extent, rate caps and you have to renew some business because it's in the admitted market there. So that constrained what we could do. This year, we believe we'll be able to catch up. The whole market is in a similar boat, not that, that makes us feel any better when a business isn't performing well, but it means the market is definitely moving as one in 2026.

Next, we have Andrei Stadnik from RBC for his second question.

Look, my second question, can I just ask around broker-led facilities? That business has grown amazingly well over the past few years. It feels like it's 30% compound or maybe better. Going forward, what should we be thinking low teens growth? And is there any color you can give on profitability of that business relative to the rest of the book?

So on the first one, it's a great question. We believe there are going to be more. So we've seen how the major brokers have are all creating them. So we saw one major broker start much earlier about a decade ago, and then others have done that. So we are expecting others to follow suit. We've also seen over the years, the percentage going into them has actually grown. So while the broker facilities tend to have started about 10% of the overall placement and now some are getting closer to 30%. So there's been growth in 2 elements, more brokers doing it and the percentage growing up. Also within our QPS portfolio, we do portfolios of MGAs, and we're seeing more of that happening. So we do see more growth. It's going to be very hard, Andrei, to say whether it's going to continue at 30% or not. I guess I would be surprised if it grows at that level. But being a market leader in it, we are seen as a good place to start when brokers are thinking of doing them. So good growth going forward. From a profitability point of view, they do act a bit like an enhanced market tracker. So if the Lloyd's market is performing well in total, the facilities are performing well. So they've performed, I would say, in the 80s combined ratio over the time we have been on them.

Next, we have Andrew Buncombe from Macquarie.

Just the first one from me. Some of your global competitors have been quite vocal about growth in global data center facilities. Can you just talk to how you're approaching those risks? But also, are they going through your QPS portfolio? Or are they separate?

Okay. So it's a good question. So yes, there's been a lot of talk about data centers and the opportunity, and we touched on it, I think, at the end of last year. So what we're doing, we already write some through our current underwriting teams across the globe, within QBE. What we have decided to do is appoint someone to coordinate our approach to them. So Jamie Thompson, who's actually based in London, has been with the company quite a long time. He is coordinating our data center approach where we can offer lines across multiple products to this data center opportunity. So a more joined-up approach of leveraging our expertise. So I think this is a great opportunity wherever data centers are cropping up, we will be able to grow with that. Very hard to determine exactly how much premium is going to take place within it, but we see it as a great opportunity to lend to ourselves to our global footprint and the breadth of product expertise. QPS will definitely be writing lines on it because it writes a portfolio of business. So within QPS, it will write it as well. And the great beauty about QPS is it ends up having relatively small limits over many, many different things. So we will end up having that doubling up impact just as we do in all our other lines of business.

Great. And then my other one was just in relation to the FY '26 combined ratio guidance. Your first half accident year combined ratio for crop was a touch lower than the normal approach. Just can you help us think about how -- or what assumptions you're making for combined operating ratios in the North American crop business inside of your group guidance?

Yes. I mean I'll hand over to Chris, but I think it was only a touch lower than where it was. We're happy with the new strategy we put in place over the past couple of years, and we saw how that came to fruition in the 2025 results. The aim is to make a major move in it.

That's right. Yes, we're not looking to make any major change. I think we quoted earlier that the combined ratio is around about 94%. It's still early days. It's quite a second half business, but we haven't had -- at this stage, our view remains pretty positive on how that portfolio is performing as we get early views on planting conditions.

Next, we have Siddharth Parameswaran from JPMorgan.

I was hoping I could just get a comment around 2 things. Firstly, just inflation, just how that has been tracking versus what you were saying before. I think the last comment that I remember was that there was inflation that was above rate. And maybe if you could just comment maybe just geographically and also maybe particularly around some of the key classes like property and liability.

Do you want a go?

Look, I think we saw that rate for the half has come in at around about 0.5 point I think we expect for the full year, that remains our view for the full year. I think as you say, Sid, as we look now, inflation is tracking a little above where rate is, but we're not really seeing that translate through to sort of a material impact on our outlook really or in terms of our underlying performance. I think as we discussed in the past, the challenge for us with rates of inflation, of course, it does have some impact, but it's really just one lever in a much broader suite. I think the key line, as others have called out, has been property around the globe, where we are seeing rate coming off -- actually coming off and therefore, materially below where we see inflation. But this is a portfolio that has been particularly adequate for a long period of time. We've seen significant rate increases. So we're not really seeing that rate inflation dynamic translate into sort of a drag on the performance over the first half.

Okay. If I could just ask a second question, particularly about the strength of buffers then. As you said, rate over inflation, mathematically, things would be getting worse at least on your loss ratios. I think, you made the comment that you always start reserving a lot of your accident years very conservatively and you start releasing after 3 years, presumably, given that rate is below inflation, the buffers there would be reducing. I was hoping you could just comment, firstly, just on sustainability. We see some very large releases from Australia in particular. Are those sustainable? Maybe if you could just give us some comment on anything you could point to paid-to-incurred ratios or anything which might help us gain confidence that the reserving releases can continue?

Yes. I mean, look, I think what we have seen over the past few years is our IBNR to case ratios have been increasing fairly consistently over the last few years. That's exactly what we'd expect as we changed the reserving philosophy to holding on to ultimate for a period of 3 years before we release on the long-tail lines. We have seen, again, at the half this year that we've again seen that the ratio of IBNR to case has increased again. But some of that is also just down to mix as opposed to being purely kind of where we're setting the strength. But I think the point we're making is at the moment for our ex cat is kind of a one-way test. When we see bad news, we're reflecting it straight away. And where we're seeing good news, we're holding on to it for a period of 3 years. And some of what you're seeing in the release of the first half has really just been the math of that, that excess that we're holding on to flowing through. In terms of the part of the extent to which the shift between rate and inflation is kind of eroding that, that's really something we take into account at the time of planning and at the time of sort of setting the allowances. So it's not as if we take any less prudent approach because of what we're seeing in rate and inflation versus what we would have done otherwise. So I don't think you should be interpreting rate inflation having an impact on our ability to see prior releases in the future.

Next, we have Kieren Chidgey from UBS.

First question is just on the U.S. If we take out crop and even if we adjust for your onerous provision on accidents and health, it does look like the first half combined ratio is still over 100% across the rest of the U.S. portfolio. Just interested in sort of what's still driving that outcome and sort of where you see combined ratios ex crop moving in the U.S. over the medium term?