In morning trade the QBE Insurance Group Ltd (ASX: QBE) share price has climbed 7% to $13.20 following the release of a solid full-year result.
Here's what you need to know:
- Revenue from ordinary activities rose 4% to US$17.3 billion.
- Net profit after tax increased 5% to US$844 million.
- Final partially franked dividend of 33 Australian cents per share, bringing full-year dividend to 54 cents per share.
- Combined operating ratio improved to 93.2%.
- Gross written premiums fell 4.6% to US$14.4 billion.
- Cash earnings per share of 65.5 U.S. cents.
- Three-year cumulative on-market share buyback of up to A$1 billion.
I can't say I'm surprised to see QBE's share price rally after today's release. Whilst the result was undoubtedly a strong one, the decision to buy back up to A$1 billion of shares on-market over the next three years is certainly great news for shareholders.
Key to the strong result were the corrective actions that the company took across underwriting and pricing. Together with a disciplined approach to its claims management, the company saw a significant improvement in its Australia-New Zealand business.
There was also an improvement in the company's North American operations. Underwriting profit more than doubled in the segment during the year, helping its combined operating ratio improve to 97.7%. Pleasingly management expects further improvement in segment profitability in 2017 and 2018.
Elsewhere its European operations delivered a strong combined operating ratio of 90.2%.
What's next?
Whilst management expects the market to remain challenging in 2017, it does believe there are signs of improvement and expects the decline in global pricing to ease.
Furthermore, management is encouraged by the improved macroeconomic outlook in the United States following Trump's election victory. If Trump stimulates inflation and causes rates to rise, QBE's investment income should benefit due to higher bond yields.
In FY 2017 the insurance giant has forecast for stable gross written premiums, a combined operating ratio between 93.5% and 95%, and an investment return of between 2.5% and 3%.
Should you invest?
Based on today's result QBE's shares are changing hands at just over 15x full year earnings.
Whilst I still have a preference for Suncorp Group Ltd (ASX: SUN), I do think that QBE is an attractive option for investors looking for exposure to the insurance industry at the current price.
