A week ago I wrote that QBE Insurance Group Ltd (ASX: QBE) shareholders might be able to see the light at the end of the tunnel after Moody's Investors Service released a report titled: "QBE Insurance Group Limited — Strategic and Capital Initiatives Improve Balance Sheet and Earnings", concluding that QBE's "business performance will improve and become less volatile, because of the significant operational and financial actions that it has undertaken over the last two years".
Since then, the share price has fallen another 2% to end last week at $11.91 and on Wednesday it bottomed at $11.57, a 10-month low for the giant insurance company!
What happened? The most significant driver of the share price weakness is most likely the hot conditions being felt around Australia and Suncorp Group Ltd's (ASX: SUN) warning a week or so ago that its profits would be meaningfully lower this financial year due to higher costs and higher claims, a problem that could reasonably impact QBE too.
QBE also lost a court case regarding its travel insurance, however analysts have hinted that this shouldn't be significant in the long term.
What now? QBE remains on track to post its best year in recent memory. It's widely expected to be well on its way to achieving the 2015 forecast of:
- gross written premium (GWP) between US$15.5bn and US$15.9bn,
- net earned premium (NEP) between US$12.6bn and US$13.0bn,
- a combined operating ratio (COR) between 94% and 95%, and
- an insurance profit margin of between 8.5% and 10%.
Big profits, big dividends
All of this should see the group's dividend payment increase by as much as 25% year-on-year, as the group targets a higher payout ratio now that the majority of the balance sheet issues have been sorted.
