Why QBE Insurance Group Ltd shares got crushed today

Shareholders' patience is being sorely tested.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

What: Shareholders in QBE Insurance Group Ltd (ASX: QBE) have been stunned once again today as the global insurer issued yet another profit downgrade. The downgrade has been blamed on the little know Argentinian workers' compensation business which is a reminder to investors of the complexity they are dealing with in trying to analyse and value this sprawling business.

So what: Guidance from QBE's management of a combined operating ratio between 96% and 97% compared with consensus expectations of 93%, along with guidance for a profit margin between 7% and 8% rather than expectations for 10% has sent investors fleeing the stock. By mid-morning the share price had slumped 11% to $10.58.

The stock has now lost 35% in the past 12 months, compared with a 10.5% rise in the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO).

Now what: QBE's downgrade comes less than a week after its domestically-focussed peer Insurance Australia Group Limited (ASX: IAG) upgraded earnings guidance and advised the market it expects to report an insurance margin of between 18% and 18.3% for the full year.

The difference in performance between these two insurers couldn't be starker. It is also this gap in performance which provides hope for QBE's shareholders. Reversion to the mean is a powerful force, if QBE can improve its margins back towards long-term averages, or in line with best-in-class peers such as IAG, then there is potential for significant upside in earnings. Whether this will eventuate however remains to be seen!

Motley Fool contributor Tim McArthur owns shares in QBE Insurance Group Ltd.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »