The share price of serial underperformer QBE Insurance Group Ltd (ASX: QBE) has remained above $14 for the last month and looks stable for now, however the company's set for an extremely important two weeks so it's important shareholders know what's coming.
QBE is due to report its half-year results in eight days' time and analysts are (generally) expecting QBE to demonstrate that it's well on its way to achieving the 2015 forecast of gross written premium (GWP) between US$15.5bn and US$15.9bn, net earned premium (NEP) between US$12.6bn and US$13bn, a combined operating ratio (COR) between 94% and 95%, and an insurance profit margin of between 8.5% and 10%.
5 reasons why QBE is set for a huge August
While doing some research recently I came to the realisation that there's a good chance QBE could have had a great first half and be on its way to BEATING its earlier forecasts.
Here are five reasons why QBE could report better-than-expected results on August 18:
- There has been a noticeable lack of natural disasters in 2015. Unlike in 2014 when massive tornados and storms lashed much of the US east and west coasts and floods ravaged the Australian east coast, QBE's major insured regions have escaped relatively unscathed. This will limit the claims received by QBE and therefore boost the insurance margin.
- QBE will benefit from improved bond yields. The US 10-year bond yield has improved from 1.68% in January to just below 2.50% in June and now sits at around 2.2%. QBE's investment portfolio is expected to generate higher returns than previous years as the asset allocation has moved to a higher portion of growth assets and higher bond yields return greater income.
- QBE's removed two of its most troubled divisions. Last year's profit downgrade was due to poor underwriting standards at its Latin American workers compensation business and dragged down further by the loss-making US Mortgage & Lender Services (M&LS) business. Both of these divisions have since been sold.
- QBE could increase its dividend payout ratio. QBE has paid out "up to 50% of cash profits" as dividends in the last couple of years as the new management team aimed to strengthen the balance sheet (ie by investing more profits in the company), however the management team is now investigating increasing this in light of the group's significantly improved capital position.
- QBE could cut more costs than expected. I believe new CEO John Neil would have released the earnings guidance at the beginning of the year assuming maybe 30% of his ideas went as planned. Now that the group's successfully raised capital, sold off a number of underperforming business units and avoided major catastrophes, management should have had time to investigate further cost-cutting measures to boost margins.
