What: Shareholders in QBE Insurance Group Ltd (ASX: QBE) have been stunned once again today as the global insurer issued yet another profit downgrade. The downgrade has been blamed on the little know Argentinian workers' compensation business which is a reminder to investors of the complexity they are dealing with in trying to analyse and value this sprawling business.
So what: Guidance from QBE's management of a combined operating ratio between 96% and 97% compared with consensus expectations of 93%, along with guidance for a profit margin between 7% and 8% rather than expectations for 10% has sent investors fleeing the stock. By mid-morning the share price had slumped 11% to $10.58.
The stock has now lost 35% in the past 12 months, compared with a 10.5% rise in the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO).
Now what: QBE's downgrade comes less than a week after its domestically-focussed peer Insurance Australia Group Limited (ASX: IAG) upgraded earnings guidance and advised the market it expects to report an insurance margin of between 18% and 18.3% for the full year.
The difference in performance between these two insurers couldn't be starker. It is also this gap in performance which provides hope for QBE's shareholders. Reversion to the mean is a powerful force, if QBE can improve its margins back towards long-term averages, or in line with best-in-class peers such as IAG, then there is potential for significant upside in earnings. Whether this will eventuate however remains to be seen!
