Australian Investment Blog

Why haven't we bought insurance stocks this week? We are currently sitting on relatively high levels of cash, looking for opportunities as we are bullish stocks for the months ahead. Hence with insurance stocks being hit this week, due to the awful east coast storms, subscribers have understandably been asking why we have not taken the plunge into the sector. The decision to date has been a combination of factors, which hopefully this morning's report will shed some light on. Firstly, when we look at the insurance sector as a whole, technically we can see a further 10-15% upside, but this is not the clearest chart pattern around at present - we will look at our preferred two stocks in the sector later. Storms / accidents are part of doing business for insurance companies and if we are headed for extreme weather changes in years to come, premiums will simply rise. However, as with resource companies not being seen as Market Matters’ core portfolio holdings, as they cannot determine their own profitability year on year, the same could be said for insurance companies. ASX200 Insurance Index Monthly Chart Technically QBE looks good risk / reward buying under $12, as stops can be run below $11.50. On a macro level, QBE will benefit from rising US interest rates and a lower $A, as it holds funds in the US, and invests their insurance float largely in bonds however it must be cautioned that the market's opinion on these two variables changes regularly, and is driven largely by policy settings and rhetoric, which as we know, will likely be the source of volatility over the coming months and even years. The other important factor for QBE is the negative trends in Commercial Insurance premiums globally, which is clearly a headwind for earnings. QBE Insurance (QBE) Monthly Chart