QBE is one of the companies on our watch list.
We are looking to accumulate this company on any weakness.
Insurance is a difficult business with two major factors affecting QBE. First is the number of insurance events that have occurred each year and second the low interest rates.
It is not the size of the event but the frequency of events that are costly for insurance companies like QBE. Each event triggers a minimum payment before the re-insurance kicks in. As such, each event has a maximum payment. A large event has a limited exposure to the maximum payment.
Interest rates also pay a big part on the profit that the company makes. The premiums which we pay each year are invested in bonds. The interest from these bonds is all profit to the insurance companies. With current low bond rates, profits are being affected.
QBE is trading at $11.60 and have been as low as $10 in the past 12-months. At this level, the company is looking cheap but it is a long-term trade. We do not expect to see the price rally until interest rates begin to increase.
The risk remains to the down side as future events may call on reserves to make payments.
The yield is low with a gross dividend of 3.9%.
This is company to accumulate on weakness with a long-term focus of 2-3 years before you expect to see growth.
For more information about QBE Insurance (QBE) please contact us on 07 4771 4577.