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QBE provides upbeat update

QBE Insurance (ASX: QBE) has released an update on its Global Operational Transformation Program, which the new management team has embarked upon to rein in costs at the sprawling global insurer and to boost bottom line profits.

Excitingly, management is anticipating it could exceed its initial cost-saving targets and restated its confidence in its value creation model. The operational transformation initiatives are expected to deliver an annual run-rate benefit of at least $250 million by the end of 2015. For calendar year 2013, implementation and restructuring costs will be high, with the benefits beginning to flow in 2014 and 2015.

A key plank in the transformation program is the establishment of a ‘Group Shared Services Centre’ (GSSC) in Manila, Philippines. The creation of the GSSC has not been without controversy; with some concerned it would lead to significant job loses. Management used the briefing to hose down concerns as to the number of jobs expected to become redundant in Australia.

The GSSC is expected to provide a cost-competitive, standardised and centralised model. As the presentation which accompanied the briefing showed, GSSC will become the global, centralised hub for many functional work streams including finance, HR and operations.

Recently appointed CEO Mr John Neal also briefly ran through the trading conditions year to date (QBE has a December balance date) and stated that things were going “ok”. Europe was singled out as a drag and overall premium rate increases are expected to be over 5%, with annualised first half investment yield in line with guidance of 2.25%.

QBE’s off-shoring strategy is also being pursued by a number of other leading Australian companies including Telstra (ASX: TLS) and ANZ (ASX: ANZ). Telstra has announced that the Yellow Pages directories business which is housed within the Sensis division is looking to relocate hundreds of roles to either India or the Philippines.

This is partially in response to the declining demand for hard copy print versions which are being replaced by online and mobile demand for directory services. ANZ meanwhile is believed to be exploring the possibility of ‘near-shoring’ call centre jobs from Australia to New Zealand, where wages and costs such as electricity are lower.

Foolish takeaway

Long-term QBE shareholders have endured time in the wilderness with the share price and earning retreating significantly over the past five or so years. With a new management team at the helm, the ship is steadied and a large efficiency program in play, the future for QBE shareholders is looking brighter.

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Motley Fool contributor Tim McArthur owns shares in QBE Insurance.

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