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ASX:QBE
QBE Insurance Group Ltd
Investment Summary
The fund managers believe that QBE Insurance Group Ltd has reached a turning point after 15 years of challenges, with significant progress in earnings consistency and margin improvement. They note that North American operations have shown a remarkable recovery, transforming into profitability for the first time in four years. The company's Gross Written Premiums increased substantially, and its strengthening reserving practices enhance its financial stability. In their opinion, QBE's shares, trading at approximately 10x FY23 consensus P/E, remain undervalued compared to the pre-COVID average of ~13x, indicating potential for future growth. Furthermore, management’s proactive decisions, including exiting loss-making segments, signal a focus on long-term value creation. The fund managers recognize that QBE is well-positioned to deliver stronger dividends and return on equity as favorable industry trends continue to bolster its performance.
Commentary From The Managers
Cooper Investors
31 Dec 2024
$19.20
- Cooper Investors sold their investment in QBE Insurance (QBE) amid significant portfolio changes.
- QBE has been one of the portfolio's largest active weights in recent years.
- The original investment was based on a low-risk turnaround focused on improving performance in the long underperforming North American division.
- Management actions and improved industry conditions have significantly enhanced the business outlook.
- The market is now expecting a recovery to a low-90s combined operating ratio in the coming years.
- The stock price doubled since purchase two and a half years ago.
- The turnaround opportunity is now realized and no longer considered latent.
- Risk-Adjusted Latency appears less compelling, prompting the exit.
Cooper Investors
30 June 2024
$17.06
- Cooper Investors acknowledges QBE's decision to close its North American middle-market business as a favourable move.
- The closure addresses ongoing losses and dilutive effects on divisional and group margins.
- This exit is expected to enhance the group’s financial profile and lower property catastrophe exposure.
- It aims to eliminate distractions for management, simplifying operations.
- Achieving a 95% Combined Operating Ratio for the North American business is more attainable post-closure.
- QBE's guidance remains confirmed, although civil unrest impacts in New Caledonia may incur costs between $175-225mn.
- This news surprised some in the market, but it reflects QBE's risk assessment strategies.
- QBE demonstrated resilience by absorbing the civil unrest hit alongside other major events without significant disruption.
- The investment thesis remains underpinned by strong operating trends in the global insurance industry, showcasing minimal irrational market behaviour.
- Despite some challenges, QBE's North American turnaround is on track, based on insights gained from recent trips to the UK and US.
L1 Capital
31 Mar 2024
$18.04
- QBE shares rallied by 22% after reporting solid FY23 results, with earnings doubling year-over-year.
- Insurance profits met company guidance, indicating significant progress in achieving stronger and more consistent earnings.
- L1 Capital sees QBE as well positioned to exceed expectations going forward.
- Current consensus estimates reflect minimal improvement in insurance margins, despite positive industry trends.
- QBE has increased its weather claims budget and divested higher-risk portfolios, providing protection against future claims volatility.
- After a challenging 15 years, QBE is believed to have reached a turning point toward stronger margins, dividends, and return on equity.
- Shares have rallied over 100% since early 2021, yet trade at only 10x FY24 consensus P/E, below the pre-COVID average of approximately 13x.
Cooper Investors
31 Mar 2023
$14.59
- QBE delivered progress on a low-risk turnaround thesis.
- Improved returns in North America, profitable for the first time in FY22 in four years.
- Focus on deliberate portfolio optimisation to achieve higher and more consistent sustainable returns.
- Operating trends supported by pricing above claims inflation and rising investment yields.
- More rational industry behaviour as capital withdraws from the industry.
- Management demonstrates intentional focus on long-term value creation, even with short-term sacrifices.
- Example of sacrifices includes conservative reinsurance and quota share deals.
L1 Capital
31 Mar 2023
$14.59
- QBE shares rose by 9% after reporting strong FY22 results, exceeding consensus estimates for cash NPAT by 15-20%.
- The results indicate significant progress in delivering stronger and more consistent earnings.
- QBE is improving the performance of its historically struggling North American business.
- The company has strengthened its reserving, positioning itself to achieve consistent earnings growth in the coming years.
- Despite past caution regarding QBE due to industry-specific issues, L1 Capital believes the company has reached a turning point after 15 years of challenges.
- L1 Capital anticipates stronger margins, dividends, and return on equity going forward.
- The market has not yet fully recognized this inflection point, with QBE trading at only 10x FY23 consensus P/E, compared to a pre-COVID average of ~13x.
L1 Capital
28 Feb 2023
$15.08
- QBE shares have increased by over 10% following the release of robust FY22 results.
- The cash NPAT reported was 15-20% ahead of consensus estimates.
- This result reflects significant progress in delivering stronger and more consistent earnings.
- Improvements in the North American business are notable, which has historically struggled.
- The company has considerably strengthened its reserving, positioning it well for consistent earnings growth.
- After years of caution, L1 Capital believes QBE has reached a turning point for better margins, dividends, and return on equity.
- The market has yet to fully value this change, with QBE trading at only 10x FY23 consensus P/E, compared to a pre-COVID average of around 13x.
L1 Capital
31 Dec 2022
$13.08
- QBE shares rose by +16% during the quarter due to buoyant premium volumes and rates, alongside investment yields tracking ahead of market expectations.
- Improved performance in North American business, historically a struggle for the company.
- Considerable strengthening of reserving, positioning QBE for consistent earnings growth over the next few years.
- Long-standing caution on QBE has been evident due to industry and company-specific issues.
- Belief in a turning point for QBE after 15 years of headwinds, anticipating stronger margins, dividends, and return on equity.
- Market expectations may not yet reflect this inflection point, with QBE trading at ~8.4x FY23 consensus P/E compared to a 10-year pre-COVID average of ~13x.
L1 Capital
31 Aug 2022
$12.07
- QBE (Long +5%) shares rose in August after robust H1 results with underwriting profit 15% ahead of consensus.
- Significant growth illustrated by GWP, with a 21% increase in 2021 and 18% increase in H1 2022 (constant currency).
- Improvement in North American business, showing better operating trends and reserving, reducing chances of future issues.
- Beneficiary of rising interest rates, with ~$27b investment book expected to generate an additional ~$240m earnings.
- After 15 years of headwinds, QBE is at a turning point, poised for stronger margins, dividends, and return on equity.
- Market expectations not yet factored, with QBE trading at ~8.5x FY23 consensus P/E compared to ~13x pre-COVID average.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.
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