QBE Insurance Group Ltd (ASX: QBE) shares have been in fine form over the last 12 months.
During this time, the insurance giant's shares have stormed 22% higher.
This is almost triple the return of the ASX 200 index over the same period.
Can QBE shares keep rising?
The good news for investors is that it isn't too late to invest according to analysts at Goldman Sachs.
According to a note, its analysts have retained their buy rating and $20.90 price target on the company's shares.
Based on its current share price of $18.32, this implies potential upside of 14% for investors over the next 12 months.
In addition, the broker is forecasting dividend yields of 5%+ each year through to at least FY 2026. This boosts the total potential 12-month return to approximately 19%.
If this proves accurate, it would turn a $10,000 investment into approximately $11,900 if you reinvest the dividends.
Why is the broker bullish?
Goldman notes that the insurance giant has recently held a number of investor meetings. It was pleased with what management said, highlighting that it is confident in can deliver a combined operating ratio (COR) of 95% in North America by 2025. As a reminder, anything below 100% is profitable for insurers.
In light of this, the broker believes that there is upside risk to consensus COR estimates. It said:
In this context, we flag 1) Upside risk to FY25 consensus COR of 92.8% (VA) – we see <92.5% as possible reflecting improvement from North America non core + organic upside. 2) North America non core run off we think could support ~0.7% -1.2% improvement to Group COR alone. 3) Organic trends also suggest possible underlying COR expansion into FY25.
Goldman also highlights a number of other key items and reasons why it thinks QBE shares could re-rate higher from here. It adds:
Rate increases earning through FY25 versus moderating claims inflation expected to remain supportive into FY25 – 1Q24 Group rate was 7.3% versus inflation assumption of 5% for FY24. b) Reinsurance markets increasingly more positive with commentary from 1 June renewals suggest lower rates (particularly in upper layers) which are supportive of direct insurer margins and positive read into 2025. c) QBE's 2024 perils allowance was rebased to an 80% probability of sufficiency (out of the last 10 years) perhaps suggesting less pressure into FY25 and perils growth more in line with book. Perils experience to date has been below expectations. d) All in, there appears to be strong COR tailwinds to offset moderating yield pressures which is supportive of ROE / Valuation into FY25. 4) Valuation comparison versus global peers also suggests upside for QBE across P/E and P/B particularly in context of strong ROE.
