How does QBE stack up?

One of the issues the insurance industry faces is that it sells what can best be described as a ‘commoditised product”. From a practical point of view, this term refers to the fact that most consumers don’t care who they buy their insurance from, all they care about is the price.

As most readers have experienced when their annual house or car insurance policy comes due, after a call to your broker or a quick comparison online, a few insurers offering the same level of cover are identified and then the lowest price wins.

From an investor’s point of view, this “commoditisation” of insurance makes comparisons with other insurers critical. Comparative analysis can help to identify a company that may for some reason have a sustainable competitive advantage, such as a market niche or a lower cost to serve and likewise, can identify a poor performer that may have problems down the track.

QBE Insurance (ASX: QBE) is often compared to its two main Australian competitors, Insurance Australia Group (ASX: IAG) and Suncorp Group (ASX: SUN). Given that QBE writes around 25% of its business in Australia and New Zealand, this comparison is not unreasonable, however, given the expansive global operations QBE has, a wider sample is more useful.

For many years (until its latest 2012 results) management has provided details in its year-end presentation, which outlines QBE’s performance relative to its peers based upon its combined operating ratios (COR). These peers include major global players such as Allianz SE (ETR: ALV), Zurich Insurance Group (VTX: ZURN) and Swiss Re (VTX: SREN). Unfortunately, it appears management has stopped including the slide, however, the information is publicly available, so investors can attain the information themselves. (See below for the most recently available slide).

Not only is a comparison of operating metrics a worthwhile analysis to undertake, but so is a relative valuation of listed peers. Of note, QBE’s listed peer group all appear to be trading on much lower, indeed many are on single digit, price-to-earnings multiples compared with QBE. This suggests the rest of the world is valuing insurance companies less optimistically that Australian investors at present.

qbe chart

Source: QBE

Foolish takeaway

The fact management has stopped including a slide it has long provided should be a red flag. Insurers are complicated businesses and investors need to dive deeply into their accounts to garner a full understanding of each business.

In the market for 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

Motley Fool contributor Tim McArthur owns shares in QBE Insurance.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

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.