QBE continues to bleed from US operations

Company agrees to pay US$10 million for dodgy insurance practices.

a woman

QBE Insurance’s (ASX: QBE) terrible run in the US continued last week with the company agreeing to pay a US$10 million settlement to the US Department of Financial Services (DFS) for the way it was operating its ‘force-placed’ or ‘lender-placed’ insurance. The insurance protects lenders and mortgage investors if home owners stop paying their premium.

US borrowers are often forced to pay for the insurance, which is required under the loan contract. However QBE, through subsidiary Balboa Insurance, and another key provider of the insurance were found to have paid banks big commissions to win the business and then passed that cost on to the borrower.

The market for force-placed insurance is dominated by QBE and American insurance provider Assurant, Inc. (NYSE: AIZ), who agreed to stump up US$14 million for similar breaches last month. QBE will also have to offer compensation to affected home owners and change the way it operates the insurance. The DFS now prohibits insurance companies from paying commissions to banks for the policies and QBE has reduced its rates on forced-placed policies by up to 9% following a review.

Balboa was picked up in 2011 by QBE’s former CEO Frank O’Halloran during the company’s aggressive expansion program which netted over 140 new acquisitions. But the penalty is just the latest bleeding of capital in a disastrous period for QBE’s US operations. The company’s 2012 result was marred by losses in the US, with insurance profit plummeting US$610 million — from US$440 million to a loss of $170 million — on a margin of -4.9%. The outcome was the combined effect of massive losses from super storm Sandy and one of the worst US droughts on record.

Unlike fellow insurance companies IAG Limited (ASX: IAG) and Suncorp Group (ASX: SUN) QBE has a high exposure to the US, which represents 35% of the company’s gross written premiums.  Despite the losses in its 2012, new group CEO John Neal said in the annual report he was confident the region will “exceed our hurdle return expectations over time”.

Foolish takeaway

QBE is like the old Monty python sketch “Black Knight“, where despite having both arms chopped off and bleeding profusely, the knight proclaims “it’s only a flesh wound!”. The huge losses sustained by the company’s US operations may be isolated events from which it can battle on, but with problems persisting investors will be hoping the company can turn things around before it loses a limb for good.

Like the sound of QBE and looking for more high yielding ASX shares? Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Regan Pearson does not own shares in any of the companies mentioned in this article.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of January 12th 2022

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

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

The share price of ASX infant products retailer Baby Bunting Group Ltd (ASX:BBN) has been a solid performer so far …

Read more »

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

3 ASX ETFs that invest in companies fighting climate change

A new landmark report by the Intergovernmental Panel on Climate Change (IPCC) was released earlier this week. It provided a …

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 Limited (ASX: AMS) share price has been on a tear this past week, rising 15% on the back …

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

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

Online furniture retailer Temple & Webster Group Ltd (ASX: TPW) had a breakout year in 2020, moving from relative obscurity …

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

Shares in ASX healthcare company Polynovo Limited (ASX: PNV) almost doubled in price last year. And, despite a shaky start …

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

Investing in other geographic markets has become a popular way to diversify a portfolio. The risks associated with being exposed …

Read more »

person reading news on mobile phone
⏸️ Investing

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

Despite the News Corporation (ASX: NWS) share price getting a 31% bump between November last year and today, News Corp …

Read more »