QBE Insurance Shares Update

QBE Insurance Group (QBE) has an Outperform recommendation and a 12 month price target of $12.84 for their shares from stockmarket analyst Macquarie Research. The insurance provider is also the analysts preferred company in the insurance sector.

QBE Insurance Group Ltd, Australia's top insurer by premium income, reaffirmed previous CY08 guidance reporting that it is on track to meet its full year insurance profit margin target of 19-20%. QBE stock lost 35% during the first quarter of 2008 – Chairman John Cloney said that the volatility was based on “unfounded market rumours” and short-selling. Macquarie Research (MRE) maintain their outperform recommendation for QBE stock with a 12 month price target of $28.84. QBE stock gained over 4% this morning and traded at approximately $25.60 around midday.

QBE Event

At today’s Annual General Meeting, the QBE Chairman advised shareholders of upbeat expectations for 2008.
1. A 7.5% increase in gross written premium income and a 10% increase in net earned premium income.
2. 19-20% insurance margin – including an allowance for catastrophes in excess of those experienced over the past 5 years.
3. Franking rate will decline to 20-25% due to an increased proportion of offshore income.
4. An unwind of 50% of its equity hedge which could give rise to further market-related upgrades.
5. A$27b worth of cash and investments
6. A 3% drop in premium rates compared to 4% predicted earlier in the year.

Impact on QBE Insurance

The reaffirmation of guidance in relation to key financial metrics was well-received and commentary surrounding the pricing outlook is positive which bodes well for the maintenance of margins in 2009/10. QBE also reaffirmed that it had no sub-prime mortgage exposure and will look for further acquisition opportunities. The company has completed close to 110 acquisitions in the past 25 years.

QBE Action and Recommendation

Regardless of a severe year in term of global catastrophe losses, QBE should still be able to deliver against insurance margin guidance resulting in a positive outcome for shareholders.

QBE remains MRE’s preferred pick in the insurance sector.