QBE Insurance

Insurance Australia (IAG) has a target price of $3.83 and an under-perform recommendation on the stock from Australian Stockmarket analyst Macquarie Research Equities.

Insurance Australia (IAG): In A Grind

IAG’s CEO, Michael Hawker, has announced his resignation on the back of a loss of key institutional support. His replacement is COO and former Promina CEO, Mr Mike Wilkins. Macquarie Research Equities (MRE) discusses the impacts of this move for the company and the implications of IAG’s global operational review in early July.

The Impact

QBE Insurance (QBE) has a maintained Outperform recommendation and a $28.84 share price target after the AGM from Australian sharemarket analyst Macquarie Research.

QBE: Margins Looking Up

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.

Macquarie Research Equities (MRE) has reiterated their outperform recommendation for QBE with a 12-month share price target of $24.02. "QBE remains MRE’s preferred general insurance exposure reflecting superior top line growth prospects, exposure to more favourable insurance pricing conditions in international markets, and relative earnings certainty." The broker notes that QBE shares have been "stand-out performers in the ASX200 for the calendar year to date" and has "gained 12.6% versus the ASX200 return of 8.9%, outperforming the market by more than 3%." QBE Ltd.

QBE Insurance, last Friday, have confirmed that they had completed and settled the acquisitions of Praetorian Financial Group and Winterthur US after receiving regulatory approvals from 35 US states. Australian sharemarket analysts Macquarie Research Equities said that QBE has underperformed of late on the back of recent A$ strength (which has partially reversed), concerns regarding the global pricing cycle and an absence of news flow. But MRE remain believers in the QBE story, and note that the stock remains "attractive" at these levels. The finalised acquisition details are consistent with previous guidance: The total purchase price for the two acquisitions was A$2.5bn (~A$1bn for Praetorian and ~A$1.5bn for Winterthur) plus QBE will repay a US$557m loan to Winterthur US' parent bringing the total funding cost to ~A$3.18bn; Net Tangible Assets (NTA) on completion is estimated at A$1.5bn giving rise to A$1bn of acquisition goodwill (consistent with our $1.019bn estimate); Annual gross written and net earned premium from the acquisitions is estimated at US$2.8bn and US$2.6bn respectively, including additional retained premium from the cancellation of the Praetorian 50% quota share treaty with Hannover Re.; QBE will consolidate Praetorian from 1 April and Winterthur US from 1 June (underpinning CY07 and CY08 Gross Written Premium GWP growth of 30% and 15% respectively); Profit after tax and funding costs from the acquisitions is estimated at A$380m in the first full year with $50m of after tax synergies ($19m from Praetorian and $31m from Winterthur) forecast by the end of 2008. While there was never really any doubt that the acquisitions would ultimately proceed, there was the very real threat of delays. In this regard, achieving regulatory approval in 35 US states in a timely manner so as to be able to meet CY07 premium and earnings expectations is impressive and will provide further confidence in QBE's FY07 earnings outlook and management’s acquisition capabilities more generally. Moreover, having completed and settled the acquisitions, QBE Insurance is presumably now back on the acquisition trail with Europe seen as the most likely area for consolidation in the lead up to Solvency II. In this regard, QBE could acquire $1.5bn of GWP without requiring any additional equity funding. The analysts reiterate their outperform recommendation, with a $35.53ps price target (based on a long-term insurance margin assumption of 12%), QBE Insurance represents attractive buying at current levels.

QBE Insurance have a reiterated Outperform recommendation and a 12 month price target of $35.08 per share from market analyst Maquarie Research Equities. Yesterday, QBE held its 2007 AGM, where management confirmed recent guidance at the FY06 result is unchanged. The analyst has said that yesterday's comments may "slightly enhance consensus Earnings Per Shares (EPS) forecasts", and accordingly, reiterate their outperform recommendation. FY07 guidance provided with the release of the FY06 result is unchanged:
(1) 17.5–18.5% FY07 insurance margin.
(2) 30% increase in FY07 Gross Written Premium (GWP) and 40% increase in FY07 Net Earned Premium (NEP) (subject to no regulatory delays in settling recent US acquisitions)
(3) 20% increase in FY07 NPAT and 15% increase in diluted EPS (with
capital gains on equities at a lower level than the past two years)

QBE Insurance management have reiterated that 2007 guidance is premised on average rate reductions of 3%. This does not specifically refute recent speculation that pricing has fallen by more than the 3% allowance, but if this has in fact been the case, management does not view it as material enough to warrant any change to existing margin guidance. The equity component of the US acquisition funding package has been reduced to less than $1bn from $1.3bn previously. This implies no further equity issuance and so the next two dividends will no longer be underwritten, resulting in just under 40m shares being issued, relative to the 60m originally envisaged by QBE. QBE does not contemplate any further major US acquisitions for at least the next 18 months, although it is investigating a number of small acquisitions in other countries. Importantly, currency sensitivity was provided for the first time. A 1% change in the A$ relative to all currencies (sustained for 12 months) equates to a FY07 NPAT impact of ~$10m, or 0.5% based on the anlayst's FY07 NPAT forecasts. This disclosure should alleviate any exaggerated fears regarding excessive adverse leverage to recent A$ strength. QBE also stated that subject to exchange rates, closing gross Funds Under Management (FUM) is expected to be ~$28bn by the end of FY07 and around $30bn by FY08.

QBE Insurance (QBE) have an Outperform recommendation and a price target of $32.20 per share which is subject to upgrade from Macquarie Research Equities (MRE). QBE shares are 28 percent higher since last December. The share price target is subject to upgrade reflecting revised US acquisition funding package and prospects for further acquisitions with the post balance sheet capital structure capable of absorbing further acquisitions without significant additional equity. QBE announced a FY06 NPAT of $1.483bn, up 36% from $1.091bn pcp. The final dividend was 55¢ps, up a whopping 45% from 38 cents per share pcp and well ahead of consensus. Gross Written Premium (GWP) was $10.4bn, up 10.5% from $9.41bn and NEP was $8.2bn, up 11% from $7.4bn pcp (consensus $8.42bn, MRE $8.53bn) with the slight disappointment relative to consensus due to currency related weakness and slightly higher outwards reinsurance costs. Investment income on capital was $363m, up 4% from $348m pcp (MRE $389m), reflecting higher average float and strong equity markets tempered by a reduced equity weighting and equity collars. The result itself was unlikely to surprise given quite specific guidance in early Dec and the market's tendency to project above guidance reflecting QBE's historical track record in managing then exceeding expectations. Based on proximity of MRE's existing forecasts to management guidance, at this early stage MRE do not anticipate material earnings changes. Commentary on pricing trends suggests a relatively benign cyclical downturn (at this stage) which bodes well for organic earnings sustainability. US acquisition equity funding package - still coy about details but confirmed they have secured underwriting arrangements for the next three dividend payments (totalling about $1.4 billion) which MRE interpret as giving QBE breathing space (S&P will given them capital credit for the underwriting agreements) to determine the optimal funding mix in due course.

JP Morgan has rated the QBE Insurance (QBE) stock as Neutral. The broker completed some dividend calculations which suggests a 90c dividend over the 80c dividend that the market has in mind The broker suggests the dividend could be higher. An the other hand ABN Amro sees an opportunity to buy into this company seeing that it is not expensive and the fact that having hurricanes could be more of an opportunity than a threat: