Why the QBE Insurance Group Ltd (ASX:QBE) share price is the worst performer on the ASX 200 this morning
Stock
QBE Insurance Group (ASX: QBE) $9.94 as at 11/12/2018
Event
The QBE Insurance Group Ltd (ASX:QBE) share price has slumped to a five-month low after the insurer issued an updated that the market has taken as a convoluted profit warning.
The QBE share price tumbled 4.2% to $9.93 in morning trade – making the stock to worst performer on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index by a large margin at the time of writing.QBE Insurance Group (ASX: QBE) Chart
The Challenger Ltd (ASX:CGF) share price and Ausdrill Limited (ASX:ASL) share price are the second and third worst performers on the ASX 200, respectively, as they gave up close to 3% of their value each.
If you blinked, you’d probably would have missed the bad news for QBE after management said it had completed the streamlining of the business by divesting some of its insurance businesses and is looking to save $130 million through an efficiency drive in 2021.
It has also changed its 2019 reinsurance programme to limit its exposure to major catastrophes and claims volatility. Management added that this change would save $125 million in reinsurance costs next year.
All these developments may sound like good news for lifting shareholder returns but there’s a sting in the tail.
The $125 million savings will be more than offset by the increase in the budgeted allowance for large individual risks and catastrophe claims to around $1.4 billion from $1.2 billion because of “greater variability around reinsurance recoveries”.
What’s more, QBE’s efficiency drive will shave another $95 million off its bottom line for restructuring costs in 2019-2020.
Management tried to reassure shareholders by pointing out that it expected to achieve an improved combined operating ratio and higher overall profitability in 2019 compared to the current year, due in part to expected premium increases.
The value of QBE’s shares have fallen around 7% since January, which is largely in-line with its peers, such as the Suncorp Group Ltd (ASX:SUN) share price and Insurance Australia Group Ltd (ASX:IAG) share price.
