Shares in accident-prone insurance business QBE Insurance Group Ltd (ASX: QBE) plunged more than 10 per cent this morning after the group impersonated a car crash on revealing its earnings result for the six-month period ending June 30 2016.
Let's pick through the wreckage:
- Statutory profit after tax down 46% to $265 million
- Cash profit after tax down 39% to $287 million
- Cash profit ROE of 5.6% (1H15 8.6%)
- Underwriting profit down 5% to $337 million
- Gross written premium flat on a constant currency basis and excluding the Mortgage and Lender Services business
- Combined operating ratio of 99% (1H15 94.1%)
- Debt to equity of 33.7% (FY15 33.6%)
- Final dividend of 21 cents per share, 50% franked (1H15 20 cents, 100% franked)
Predictably the group blamed the result on multiple external factors ranging from general macro conditions and investment markets globally to pricing declines, claims inflation and the "well-publicised deterioration in the NSW compulsory third party (CTP) insurance scheme" across its core ANZ markets.
All of the above would have impacted QBE's performance, but it remains that operating performance seems far from optimal as the group edges back to the recent years of multiple profit downgrades that the latest management team led investors to believe were a thing of the past due to their transformational strategies.
I have written multiple times before my opinion that QBE is not an investment grade business due to the competitive environment, its complexity, operating blunders and general inability to deliver consistent earnings growth.
After today's latest let down the group's chief executive John Neal announced the CEO of the ANZ business would be leaving QBE "effective immediately".
In May 2016 the group appointed a new CEO to its struggling North America operations and the group took on a new chief financial officer and chief risk officer as recently as 2014.
Senior management merry-go-rounds at supposedly blue-chip businesses should be a bright red flag for investors, as also demonstrated by the chopping and changing of management at another blue-chip dud in Woolworths Limited (ASX: WOW).
Foolish takeway
Surprisingly, many investors will probably remain attracted to QBE on the basis that it trades on a low multiple of earnings, pays a dividend and is (theoretically) leveraged to the commencement of a US cash rate hiking cycle. I won't be holding my breath for a return to the glory days as the key to success in investing is identifying the stars of tomorrow not 1999!
