The share price of QBE Insurance Group Ltd (ASX: QBE) has fallen 28% in the last 6 months compared to a 9% drop in the S&P/ASX 200 (Index: ^AXJO) (ASX:XJO) index that it’s a part of.

What’s happened?

From a high level, investors could assume that it has something to do with the 20% fall in net profit reported by close rival Insurance Australia Group Ltd (ASX: IAG), or perhaps a major natural disaster in the US or Australia.


While there have been issues in the US related to major snow storms and devastation by massive bushfires in Australia, analysts don’t believe they will make any meaningful difference to QBE’s bottom line.

Rather, as my colleague pointed out earlier this week, QBE’s share price movement is more a reflection of the global outlook for interest rates than anything else. Let’s take a quick recap; 12 to 18 months ago QBE’s management team noted that returns on the company’s massive cash balance (comprised of forward-paid insurance premiums) were well below (around 2%) what they’d ideally like (much more than 2%).


This problem is not confined to just QBE. Investors need only look at another ASX blue-chip, Computershare Limited (ASX: CPU), to see the impact that the delay in the rise of US rates can have on net profit.

The tumultuous start to the year, as a result of the falling oil price, conflict in Syria, crashing markets, and general uneasiness, has seen big investors flock to the safety of government bonds. This increases the price of bonds and therefore decreases the income return on them (like shares, the yield on bonds falls as the price rises).

So is there any hope?

Unfortunately for investors, assuming the company’s insurance operations are ticking along without any major incidents (internal or from disasters), we have to sit and wait for an improvement in interest rates before the share price will move meaningfully higher.

This, however, is one of the reasons why I still like QBE as an investment. While the insurance market appears to be close to its peak of competitiveness, QBE still has a major lever to pull in the future to grow profits. Management has already revealed a desire to increase the risk of the portfolio to grow returns, however, it’s unclear if we’ll see any results from this when the report comes out on February 23.

QBE is NOT our Top Dividend Stock for 2016

Our resident dividend expert names his Top Dividend Share for 2016. Not only are the shares dirt cheap, the company is trading on a 5.6% fully franked dividend yield. Simply click here to gain access to this comprehensive FREE investment report, including the name of this fast growing ASX dividend share.

No credit card required!


Forget BHP and Woolworths. This "dirt cheap" company is growing like gangbusters, and trading on a 5.6% dividend yield, FULLY FRANKED (8% gross). With interest rates set to stay at these low levels for years to come, for hungry investors, including SMSFs, this ASX company could be the "holy grail" of dividend plays for 2016.

Enter your email below to discover the name, code and a full investment analysis in our brand-new FREE report, “The Motley Fool’s Top Dividend Stock for 2016.”

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our">Financial Services Guide (FSG) for more information.

Motley Fool contributor Andrew Mudie owns shares of QBE Insurance Group Ltd. You can find Andrew on Twitter @andrewmudie.

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia owns shares of Computershare. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.