After reaffirming profit guidance in mid-June, the nation's biggest insurer by market value said it would fall short of its target insurance margin of 16-18 per cent, coming in at 15.7 per cent due to lower insurance margins and investment income.

This followed further drops in risk-free interest rates, used to discount outstanding claims, since the company's London investor presentation on June 16.

The adverse trend eroded the insurance margin by 0.6 per cent, costing QBE about $US30m.

Chief executive Frank O'Halloran predicted the full-year margin would rise back into the target range, provided risk-free rates did not continue to fall and insurance losses stayed within the company's "substantial" allowance.

"The continued excellent underwriting results have been more than offset by . . . lower investment income from reduced interest yields, the fall in equity markets and one-off gains in the first half of 2009," he said.

"We are confident our insurance profit margin will benefit from our many initiatives, and expected rises in interest rates."

The insurance margin is the profit from underwriting and investment income on claims reserves as a percentage of net earned premium.

Despite Mr O'Halloran's confidence, the market responded savagely, slashing $1, or 5.6 per cent, from the stock to $16.97 -- its lowest point since March last year. A Goldman Sachs JBWere research note said investors would be disappointed by the downgrade, given the proximity of the London briefing, while Citi said it continued to prefer IAG and Suncorp to QBE.

Axiome Equities analyst Brett le Mesurier, who earlier this month predicted the QBE downgrade, said more bad news was likely, as the company navigated the insurance cycle. "The global commercial insurance market remains soft, and it will fall further." Also yesterday, QBE said it would join a growing band of companies with a large component of offshore earnings to present its profit in US dollars.

Leading Australian companies that already have done this include BHP Billiton, Brambles, Computershare, James Hardie, Resmed and Rio Tinto.

QBE, which has flagged the move for some time, noted it had operations in 48 countries, with US-dollar business accounting for about half of total premium income.

Presentation of this year's results in US dollars would "significantly reduce" foreign exchange volatility, it said.

Gross investment income had been hit by $US228m in net realised and unrealised equity losses, compared with a $US102m loss last year.

The first half of last year brought one-off gains on foreign exchange and debt repurchase of $US174m and $US46m, respectively. As a result, net profit was expected to be down by 40 per cent, although the interim dividend would be kept at 62c a share.

On the upside, acquisitions and other initiatives for this year were projected to add about $US400m in net profit, and about $US2.3 billion in new gross written premiums annually by 2013.

Mr O'Halloran said QBE would continue with carefully selected acquisitions, adding to its global footprint and product diversification. "QBE's increased spread and diversification has meant that we can now examine opportunities to improve our effectiveness and efficiency on a global basis," he said.

 ----------------------