QBE Insurance (ASX: QBE) shares have been somewhat volatile in 2025.
QBE offers a broad range of insurance products across personal, business, corporate, and institutional markets, and is involved in insurance underwriting and reinsurance. It is Australia's second-largest international insurer.
Despite fluctuating this year, the insurance providers' shares remain up more than 10% in the last 12 months.
The team at Macquarie has an optimistic view of QBE shares.
The broker has placed an outperform rating on the company, stating that it believes current valuations are at a discount to global peers.
Here is what's behind the rating.
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Excess Capital
Macquarie highlighted that as of June 2025, QBE held about US$360 million in excess capital. This was above its PCA target maximum (PCA multiple of 1.85x).
The broker said this could rise to roughly US$600 million by the end of FY25 – around 2% of market cap.
Since the last balance date, QBE retained their net T2 debt position, repurchasing and then reissuing US$300m tranches of debt.
Capital Management Outlook
Due to limited franking credits (A$274m) and a small retail investor base, Macquarie sees a buy-back as a more effective capital return tool than higher dividends.
Macquarie sees a strong likelihood of a buy-back announcement at the February 2026 result.
The broker suggests that QBE could lower its payout ratio, increase the franking rate on dividends, and introduce a perpetual buyback, similar to its peers, such as Suncorp Group Ltd (ASX: SUN).
With a low Franking balance, it may also be prudent for QBE to lower their dividend payout ratio, increase the Franking rate on the remaining dividends, and announce a perpetual buyback.
Investment view
Macquarie retained its outperform rating on QBE shares. It has a 12-month price target of $23.50 on the company.
Current valuations are at a discount to global peers as we exit the North American catastrophe season. With a greater chance of a buy-back being announced at the Feb '26 result, we retain our Outperform recommendation.
At the time of writing, QBE shares are trading at approximately $20.48, up 1%.
Based on the current price and the Macquarie price target, there is an estimated upside of 14.75%.
Elsewhere, TradingView has an almost identical 12-month price target of $23.51.
The online brokerage platform also lists QBE shares as undervalued by 14.8%.
