QBE Insurance (QBE): On Friday morning, the global insurer gave a quarterly update at their AGM, confirming the continuation of positive trends in insurance management discussed at their FY22 result in February. The HNW Portfolio has a 4% weight to QBE.

Key Points:

  • Positives: In Q1, premiums increased by +10%, which is not a great surprise to anyone (including Atlas) who recently renewed commercial insurance. Investments benefiting from higher interest rates, QBE’s US$29 billion float generated US$307 million in profit for the quarter, exiting with a 4.2% yield. For context, in 2021, QBE earned only US$122 million for the entire year.
  • Negatives:  Adverse weather catastrophe expenses for the first four months of 2023 have soaked up 90% of the allocated first-half expenditure. The New Zealand floods accounted for around half of this expenditure. Additionally, winter Storm Elliot from December 2022 in the US Pacific Northwest is likely to cost more than expected. QBE has also allocated $130 million in provisions towards the snowstorm to strengthen its position. While the market didn’t like this, but if we didn’t have bad weather, there would be no need for insurance! Indeed higher premiums totally offset these cat losses.

Portfolio Strategy: QBE has a diverse class of insurance business lines across Australia, Asia, Europe and America and gives the portfolio exposure to both a falling AUD, rising interest rates and a hardening of insurance pricing globally. This result shows the benefits of the simplification drive over the past five years that has seen QBE jettison exotic businesses such as Argentinian workers comp, Columbian third-party motor, and Ecuadorian crop insurance acquired during QBE’s growth at all costs phase 15 years ago. QBE is managing inflation well by pushing through premium increases (see chart below) and is benefiting from rising rates. QBE trades on a forward PE of 11x with a 6% yield based on a 60% payout ratio.

QBE finished down -3.6% to $14.61 on the day; despite this fall, QBE has been a solid citizen in the portfolio over the past year, up +22% vs the ASX200 +4.5%.