Can QBE Insurance Group Ltd ever get it together?

QBE Insurance Group Ltd (ASX:QBE) announced more losses and another disappointing result to the market this morning.

The part of the announcement that most stood out to me was the $110 million that had to be set aside for claims recorded primarily by QBE’s workers compensation business in Hong Kong. Workers compensation has long been a thorn in the side of QBE. This business is dangerous, like picking up pennies in front of a steamroller, and so far, QBE mostly seems to have been steamrolled by it.

Performance at the rest of the company’s operations was also sub-par, according to the combined operating ratios:

  • North American Operations – 109%.
  • European Operations – 95%.
  • Australian & New Zealand Operations – 92%.
  • Asia Pacific Operations – 115%.
  • Latin American Operations – 114%.
  • Equator Re – 141%.

The combined operating ratio is a measure of premiums taken in (revenues) minus the costs of conducting the business and paying claims. A ratio above 100% indicates that the insurer lost money, and a ratio above 95% I would describe as ‘marginal’. (This is only one year however, and ratios can be affected by cyclones and so on, so it is necessary to view the ratios over a number of years to determine if business is OK.)

I wrote about QBE as a possible buy a couple of months ago. I looked at the company more closely but never pulled the trigger – fortunately, as it turns out. While I think that a lot of things in the industry (interest rates, insurance pricing etc) are turning favourable to QBE, today’s update makes me question whether the company has a good enough business to even benefit from better industry conditions.

QBE has had problems for years and years and I’m beginning to think management should just break it up and sell it off. From the perspective of an outsider, I have also wondered whether many of QBE’s businesses (e.g. workers insurance and the Americas) are operating in an overly competitive industry or are failing to price risk appropriately. The $700 million writedown in the value of the North American business also suggests that operating conditions for this business are expected to remain poor well into the future.

Management has launched yet another detailed review of the business, and it sounds as though CEO Pat Regan may have divestments on his mind: “At the same time, we are conducting a strategic review of our Latin American Operations as we look to simplify the Group and reduce risk.”

I still think QBE is the more attractive of Australia’s two large insurers, but with its persistent problems I’m probably going to keep watching from the sideline – just as I have for the last 8 years.

OUR #1 dividend pick to grow your wealth over the new financial year is revealed for FREE here!

Financial year 2018 is here and The Motley Fool’s dividend detective Andrew Page has revealed his must buy dividend share to grow your wealth in 2018.

You might not know this market leader's name, but it's rapidly expanding into a highly profitable niche market here in Australia. Even better, the shares boast a strong, fully franked dividend that should balloon in the years to come. In other words, we're looking at the holy grail of incredible long-term growth potential AND income you can watch accruing in your account in real time!

Simply click here to grab your FREE copy of this up-to-the-minute research report on our #1 dividend share recommendation now.

Motley Fool contributor Sean O'Neill has no position in any of the stocks mentioned. 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.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…


The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!