Are you courageous enough to buy shares in QBE Insurance Group Ltd (ASX: QBE)? It seems as though every time the company has returned to profitable operations, something happens to shatter that perception.
To be fair, it's not as though management could reasonably predict three hurricanes and an earthquake in Mexico, but the news of "a pre-tax impact to earnings of approximately $600M" has hurt investor faith in the insurer, which is down 20% from recent highs of $13.40.
At $10.42 today, QBE is within inches of its 10-year low of $9.23. For context, the last time QBE's share price was below this level was 2003. The company hasn't had a good run and recent news that "the Group's 2017 combined operating ratio target range now moves to 100.0%-102.0%" was not welcome.
This means that QBE's insurance operations have become unprofitable due to the recent weather events. When you own an insurer whose insurance business isn't making money, well…
QBE will still make a considerable sum from its billions in investments, and if insurance prices do rise next year as forecast – probably a safe bet, given the impact of recent hurricanes – then the company could be a worthwhile purchase at today's prices as profits return to form in the next few years.
Higher interest rates will also lift the QBE share price, if you believe that central bankers are really going to raise rates. Put it all together and you can make a good case that QBE is an opportunity today, especially, looking at the recent run up in Insurance Australia Group Ltd (ASX: IAG) shares on news of rate rises.
Overall I think QBE is likely significantly undervalued if its troubles are truly behind it, if rates are going up, and if the company is keeping a prudent level of reserves against weather events.
Otherwise future hurricanes will result in similar unforeseen losses and QBE probably won't amount to much. I'm not a buyer of QBE yet, but it looks interesting at today's prices and I will have a closer look at the company.
