Could underperforming QBE Insurance Group Ltd (ASX: QBE) be turning the corner? Shares in the embattled insurer jumped 2.5% in late trade to $10.51 and there are two potential factors driving the share price.
Even better news is that these factors suggests the bounce may endure, although it remains to be seen how far QBE can climb from its near one-year low of $10.10 that it tumbled to last Wednesday.
The first supporting factor is Hurricane Irma. The damage bill from the hurricane was cut dramatically to around US$50 billion, or less than a third of the original estimates, because Irma changed direction. While the wild winds will still inflict damage on Florida, the city will miss most of the catastrophic damage due to the sudden change in direction.
US insurers rallied last night on the news and QBE could well be climbing in sympathy. Even shares in Insurance Australia Group Ltd (ASX: IAG) joined the party and jumped 1.9% to $6.32 ahead of the market close today.
The second reason QBE is on a tear is due to the changing of the guard. The insurer said that its current chief executive officer (CEO) John Neal will step down and will be replaced by Pat Reagan who is the CEO of QBE's Australian and New Zealand Operations.
It is believed that if anyone can drive a turnaround in QBE, it is Reagan as he knows the ins and outs of the complex insurer better than anyone else.
I think some investors are running to buy the stock on the back of the belief that QBE will find a bottom under Reagan's leadership.
Neal has been in charge of QBE for five years and has a patchy track record. The stock is lower since he took the helm although he is credited with transforming the group into an integrated global insurer from a loose collection of disparate businesses, according to the Australian Financial Review.
Nonetheless, the magnitude of QBE's underperformance over the past five years is hard to ignore with the stock slumping around 15% when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) has surged 33% ahead. Even its peers have strongly outperformed, with IAG up nearly 50% while Suncorp Group Ltd (ASX: SUN) is up 41%.
There's little doubt there is plenty of room for QBE to climb if Reagan can turn the ship. It's still a little early to call the bottom on QBE but I do believe that the stock is looking inexpensive around current levels.
What will also help is a falling Australian dollar. Pity the currency has yet to cooperate.
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