QBE Insurance Group Ltd (ASX: QBE) held its Annual General Meeting on Tuesday at which incoming Chairman Marty Becker outlined what he sees as the three main priorities for the global insurer in 2014. If the board and management can successfully address these priorities, then the investment case and outlook for QBE could certainly start looking up.
1) Earnings stability and predictability
After numerous shock downgrades the market has lost faith in what QBE tells them. Restoring this faith by reducing the volatility of earnings and providing a clearer understanding of the drivers of the business to investors will be a key to improving the market's valuation of the stock.
Management is trying to address these issues in a number of ways, including by overhauling the strategic planning, internal budgeting and business planning process and via a detailed actuarial review to provide greater certainty on the claims line.
2) Completing the renewal of the board and executive team
The fallout from QBE's problems over the past couple of years has led to a number of senior managers and board members leaving the insurer. This process of replacement and renewal is now largely complete which hopefully means a period of consistency and certainty going forward.
3) Managing the balance sheet to meet all stakeholder requirements and to provide flexibility
A concern aired by a number of QBE's followers has been regarding the strength of QBE's balance sheet. Strong balance sheets are important for all companies but none more so than banks and insurers. The group is focused on improving all key capital ratios in 2014.
Foolish takeaway
It's been a bitter pill for QBE shareholders to swallow; while QBE's share price wallows not far from multi-year lows, Insurance Australia Group Limited's (ASX: IAG) shareholders are riding high enjoying a dividend yield of over 6% and a share price that is close to its all-time high. What's more IAG's strength has allowed it to capitalise on Wesfarmers Ltd's (ASX: WES) decision to offload its underwriting business.
Despite the underperformance of recent years, QBE doesn't look like a value trap, rather it looks like a bruised business that can steady itself and regain the level of earnings and margins that it has achieved in the past.