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Thoughts on QBE

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Thoughts on QBE

“Hi James. Thanks for your view on WPL. I decided to take profits and sold at the high during last week. I am considering Buying QBE again as the SP is falling back towards previous lows. The Supreme Court has ruled in support of the UK Court Finding today, which increases risk and also increases the Re-Insurance Amount to be factored into the Accounts. QBE claim to have anticipated this ruling and included provisions in their Forecast. So theoretically this bad news has been factored in to the SP. Question: Does your analysis support QBE‘s claim they have mitigated the impact of this decision? As QBE’s Foreign Income from its US Bond holdings will be affected by rising Interest rates - What are your views on QBE at this time re Growth in EBIT and is it on your radar as a Buy?” – Richard O.

Answer

Morning Richard,
QBE is a stock I cannot help but consider on a regular basis as it continues to underperform and every time I pass I’m glad, obviously this will change one day. In December the stock was sold-off after announcing it faced a cash loss blow out for 2020 of $US780m as COVID claims and costs weighed on the business, again the market was hoping for a recovery in earnings into the second half, after a $US666m loss in the first half.

I once had a conversation at a party with the CFO of QBE who has since retired about the complexity in the business and how they manage a business with so many moving parts. I left that conversation thinking that we should only buy QBE when it has obvious and known tailwinds given the business is highly leveraged to them, but the same works on the downside. At the moment, challenges still face the insurance group which is hoping to boost premiums in 2021, though premiums tend to follow claims. An all too familiar story for QBE and a reason why we have adopted the attitude of “if in doubt keep out”.

It is a stock always on our radar, and the macro backdrop is improving, however we don’t feel it’s a stock to bottom pick unless we see some type of ‘capitulation’ on the side of the sellers.

QBE
MM is neutral QBE
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QBE Insurance (QBE)
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