The QBE Insurance Group Ltd (ASX:QBE) share price fell 3% to $10.30 this morning after the company released its full year results. Here's what you need to know:
- Revenue rose 2% to $17,267 million
- Loss after tax of $1,249 million
- Loss of 91.5 cents per share
- Dividends per share of 26 cents, partly franked
- Net tangible assets of US$4.29 (A$5.47) per share
- Combined operating ratio of 104.8% (94% in 2016)
- Sale of Latin American operations to Zurich Insurance for $409m
- Outlook for combined operating ratio between 95% and 97.5%, and net return on investment portfolio of 2.5% to 3%
So what?
It was another nightmare year for QBE, with massive storms landing the company with significant losses despite the company's reinsurance program. QBE also took a $160 million hit on the Ogden decision in the UK, which will result in all insurers having to adjust their personal injury claims estimates significantly higher. On the upside, industry pricing is expected to increase as a result.
As part of its long-running plan to simplify the company and return sustainably to profit, QBE announced that it was selling its Latin American businesses in Argentina, Brazil, Colombia, Ecuador, and Mexico for $409 million, subject to regulatory approval.
Now what?
The minimal selling activity today suggests that the market has already priced in much of the impact to QBE. However, it might also be that investors expect considerable offsetting benefits from an upturn in the insurance industry, as well as a reduction in the US corporate tax rates. The QBE turnaround seems to be taking its time coming to fruition.
I think QBE's an interesting business particularly given US corporate tax cuts, improvements in industry pricing, the divestment of the troublesome Latin American businesses, and the possibility of rising interest rates.
There is a good case to be made for a turnaround story and I am keeping half an eye on the company from that perspective. However, I also think that the turnaround could be a long and painful one and it may take several more years before QBE really finds itself running on all cylinders. That's something to keep in mind.
