The recent share price performance of Australia's two largest listed insurers could not be more different. Over the last five years QBE Insurance Group Ltd (ASX: QBE) shares have fallen 53% compared to a 60% gain in Insurance Australia Group Ltd (ASX: IAG) shares.
The companies have some similar properties; they both have a market capitalisation around $14 billion and have grown their respective businesses over time with acquisitions, but that's where the similarities end.
International vs Australian Focus
QBE is a globally diversified insurer with operations in Australia, New Zealand, North America, South America, Europe and throughout the Asia-Pacific. QBE has a large exposure to commercial and property insurance.
IAG meanwhile, is focussed in Australia, New Zealand and Asia (only 3% of premiums). IAG sells primarily personal and commercial insurance via a range of well-known brands such as CGU and SGIO.
Gross Written Premiums and Profit
The thing I find most interesting when studying QBE and IAG is trying to figure out where all of QBE's money goes. QBE generated over $18 billion in gross written premium (GWP) last financial year, compared with only $9.8 billion for IAG, but QBE managed to generate a loss of $254 million vs a net profit of $1.2 billion from IAG.
History and Outlook
Interestingly, IAG appears to be in a similar position as QBE was in 2009. In that year QBE generated $11 billion in GWP and over $1.5 billion in net profit, but a series of bolt-on acquisitions and some 'unlucky' events conspired to weigh on the group's profits.
IAG recently purchased the insurance underwriting arm of Wesfarmers Ltd (ASX: WES) for over $1 billion. The purchase may have been a little pricey and most analysts don't expect much near-term upside in earnings per share.
QBE on the other hand, has a lot of improvements to make to the business. This could see net profit return to the glory days of the late 2000's if management can successfully cut costs and divest unprofitable businesses.
Winner?
Well, that depends. A conservative investor may be attracted to the stable earnings and dividends paid by IAG, but a more aggressive investor may find the QBE turnaround story appealing. I'm on the QBE train and believe it will be much higher in five years' time!
