Thoughts on QBE & bank hybrids please

Hi Don,

Given our view that bond yields have peaked and are likely to fall, the macro backdrop is now less supportive of QBE, however there are some other aspects to consider. Operationally, they have simplified their business and instead of writing insurance for everything, they are focusing on the areas they have an edge – we think this is a good move. Insurance premiums globally are also on the rise, and this is also driving better earnings at QBE.

Distilling these factors down, we are neutral QBE, and if we did hold, we would be lightening or selling our position given our view around the macro tailwinds (higher rates) turning into macro headwinds (lower rates).

Regarding hybrids, we do try and cover these as much as we can, however not a huge amount changes in the space. Hybrids pay a margin over the 90-day bank bill rate, so although we think bond yields have peaked, we don’t think that we’re in for rate cuts any time soon. As it stands, we are still getting over ~7% yield from tier 1 major bank hybrids and we like the fact that if we’re wrong on bond yields, and these do rise from here, we will not lose capital value given they are floating rate in nature. We continue to like bank hybrids for ~20% of our income portfolio, largely irrespective of what interest rates do.

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QBE Insurance Group Ltd (QBE)

LAST UPDATED 13/07/2023 15:50

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QBE Insurance Group Ltd (QBE)

LAST UPDATED 13/07/2023 15:50