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Confusion over QBE Insurance Group Ltd. Is it a buy or a sell?

The QBE Insurance Group Ltd (ASX: QBE) share price hit a 2017 low at $9.65 yesterday after the company updated the market following the natural disasters of hurricanes Harvey, Irma, Maria and the Mexican earthquakes. The company advised that it will take a US$600 million hit to its earnings and its 2017 combined operating ratio target will likely rise to between 100%–102%.

Following yesterday’s sell off, QBE’s share price was up 2.5% this morning after analysts at Morgan Stanley declared that it was “time to buy” shares in QBE. This is because the market has priced in the downside in claims to be paid due to these natural disasters but none of the potential upside from future premium and interest rate hikes.

Foolish takeaway

QBE has said 2017 will likely prove to be the costliest year in the history of the global insurance industry. Investors will need to consider whether they expect the material increase in 2017 claims costs to repeat in 2018 or if they forecast large individual and catastrophe claims to return to long-run levels. Analysts like Morgan Stanley certainly expect the latter.

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Motley Fool contributor Kevin Gandiya owns shares in QBE Insurance Group Ltd.

You can find Kevin on Twitter @KevinGandiya  

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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