After battling a string of natural and organisational disasters in the last two years, it's not surprising QBE Insurance Group Ltd (ASX: QBE) is still out of favour with investors.
The big insurer's share price is down 5% over the last two years, well and truly walloped by the likes of Insurance Australia Group Limited (ASX: IAG) up 86% over the same time, or Suncorp Group Ltd (ASX: SUN) up 47%.
QBE shares were as high as $17.49 in August last year before CEO John Neal announced massive write-downs and a full-year loss for 2013, pushing shares down to around $11.40 today.
One of QBE's big problem remains the lack of confidence many investors have in the company which has repeatedly failed to produce adequate returns. But there are a number of positives that may be being over looked by investors.
One is QBE's "Global Operational Transformation Program" which aims to reduce costs and create efficiencies across the group. The resulting economies of scale are touted to be worth at least $250 million per year from 2015.
For another, and despite North America's failings, QBE's Asia Pacific, Australia & New Zealand operations continued to perform strongly in the first half of FY13, while Latin America grew gross written premiums 43% on the prior year.
QBE runs a conservative investment portfolio for the cash it holds. Most of it is invested across corporate bonds, government bonds and short-term money. The portfolio is worth around US$30 billion, but has suffered from poor yields in the last year. In the first half of 2013 yields were down from 4.8% to just 2.3%.
This can be hard to comprehend given the rich opportunity of rising world share markets last year, including a huge 14% rise in the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) over 2013.
However the conservative approach protects the assets from significant losses should the market hit rough waters and when interest rates start to creep up again the portfolio will spin more cash.
Foolish takeaway
If normal transition can resume for QBE the company has potential to be able to produce sizeable cash flows from its global portfolio of businesses and newly efficient structure. If this happens, the company's current price of around $11.40 per share could represent an attractive entry price.
