Investment Thesis:

• New CEO announced could bring a fresh perspective and potential rebasing of earnings. 
• As a global insurer, QBE’s operations are much more diversified than domestic peers which means insurance risk is more spread out. 
• Solid global reinsurance program should insulate earnings from catastrophe claims. 
• Expected prolonged period of lower interest rates (which does not benefit QBE’s investment portfolio). 
• Committed to the share buyback program. 
• Undertook a simplification process and sold non-core operations.

Key Risks:

• Prolonged period of pricing pressures. 
• Adverse CAT claims. 
• Ongoing prolonged period low interest rates and volatility in credit spreads which affects QBE’s predominately defensive portfolio. 
• As a global insurer, QBE’s operations are much more diversified than domestic peers which means insurance risk is more spread out. However, at the same time, as it underwrites across the globe, the business it is more difficult to forecast and analyse claims and pricing environment as well as reinsurance.
• Undesirable investment returns below management guidance. 
• Prolonged poor performances in Asia

Key highlights:

• QBE delivered 1H21 net income of $441m (vs loss of $712m y/y) as QBE continued to post solid premium rate increases (average group-wide rate increases averaged +9.7%) across all segments, as well as strong customer retention and new business growth.
• However, management warned rate momentum is showing signs of moderating in some geographies and products, particularly in International Markets.
• QBE’s operational efficiency program saw expense ratio improve -60bps over pcp to 13.7%. Balance sheet remained strong with gearing improving to 31.1%.
• The Board declared an interim dividend of 11cps (up +175% over pcp) and guided to typically higher catastrophe incidence and Crop result variability in 2H21.
• QBE saw expense ratio improve -60bps over pcp to 13.7%, with management announcing its next phase of efficiency program (focused on IT modernisation and digitisation) remains on track to deliver an expense ratio of 13% by 2023, anticipating a restructuring charge of $150m to be expensed over three years (of which $29m was recognised in 1H21).
• Gross written premium increased +20% to $10,203m reflecting the strong premium rate environment

Company Description: 

QBE Insurance Group Ltd (QBE) is a global general insurer that underwrites commercial and personal policies across North America, Australia and New Zealand, Europe and emerging markets. QBE’s Equator Re segment is its captive reinsurer, providing reinsurance protection to the entire Group’s operating divisions.

(Source: Banyantree)

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Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.