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Here’s why the QBE share price is up nearly 25% in 2019

The QBE Insurance Group Ltd (ASX: QBE) share price has bolted out of the gates in 2019, up nearly 25% following a positive outlook and report from the company. As of Friday afternoon, QBE shares closed at $12.56 after opening the year at $10.09.

Rising from the ashes

Shares in QBE insurance have been in extremely high demand amongst investors after full-year results for 2018 showed that the company had returned to profitability. Net profit after tax (NPAT) for 2018 was $390 million, in comparison to a loss of $1,249 million the year prior.

A key indicator of QBE’s 2018 turnaround was the Combined Operating Ratio (COR), a measure of the company’s profitability. QBE Insurance delivered a COR of 95.6% in comparison to 104% in 2017.  Additional highlights of the report included a reduced debt to equity ratio of 38% (41% prior) and gross written premiums up 3% to %13.66 billion.

Streamlining services

Prior to its turnaround, QBE Insurance was floundering and out of favour with many investors. Following a slew of natural disasters in 2017, the company also faced multiple downgrades, class actions and scandals, weighing down its share price. Earthquakes, hurricanes and wildfires in North America saw catastrophe claims for 2017 at approximately $1.2 billion in comparison to $523 million in 2018. With operations in all key insurance markets in 48 countries, QBE was able to improve its’s COR result by redirecting resources, cropping operations in underperforming areas and raising premiums at an average of 5% in high-risk zones.

Outlook

Operating in a cyclical sector, a key metric for consistent growth will be QBE’s ability to raise premiums annually, particularly in high-risk zones, whilst continuing to be a lead underwriter in major operations. The company looks to further simplify and improve operational efficiency with a target expense ratio of less than 14% by 2021.

QBE expects to meet a COR of 95% in FY19 with a projected net investment return of 3.25%. The company also looks to pay a dividend of 50c and is facing a favourable macroeconomic environment with projected rate hikes providing relief by easing the effect of claims inflation.

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Motley Fool contributor Nikhil Gangaram 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 Scott Phillips.

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