QBE Insurance Group Limited releases full-year results: Is it time to buy?

Yesterday QBE Insurance Group Ltd (ASX: QBE) released its full-year results for 2013. While the results were far from spectacular, the absence of any further bad news was such a relief for investors that they sent the stock up 5.3% to $12.27. Here are the key facts investors need to know.

Top line ok but bottom line poor

Net earned premium fell 3% to US$15.4 billion which wasn’t too bad considering the headwinds, however the underwriting performance was “impacted by prior accident year claims and one-off costs” which led to a 25% drop in underwriting profit from US$453 million in 2012 to US$341 million. Adding in investment income generated from policy holder funds of US$500 million and the insurance operations generated an insurance profit of US$841 million, a decline of 33% on the $1.26 billion in 2012.

At the bottom line, cash profit fell 27% to US$761 million from US$1 billion the prior year; while after impairments and amortisation the company reported a net loss after tax of US$254 million.

North American operations continue to cause headaches

The results from the North American (NA) operations were disappointing and largely to blame for the overall poor performance of the group. The specialist units of crop protection and financial partners services (FPS) were a particular drag. Overall the North American division recorded prior year accident claims of US$412 million, restructuring and other costs of a further $134 million and an insurance loss of US$445 million.

While the North American division received much of the attention, both the Latin American and European divisions also recorded significant declines in insurance profit. These two divisions saw profit declines of 18% and 41% respectively.  In comparison the ANZ, Asia Pacific and Equator divisions produced respectable results.

Foolish takeaway

With just US$4.75 in tangible book value and a balance sheet which is 44% geared there are still plenty of reasons for investors to be wary of QBE. However, investors prepared to take a contrarian view and assume that the combined operating ratio, return on equity and interest rates can all ‘revert to the mean’, can arguably see there is potential upside in the stock.

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Motley Fool contributor Tim McArthur owns shares in QBE Insurance.

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