QBE Insurance Group Ltd (ASX: QBE) has been a disastrous investment for the past decade. Unless you've had impeccable timing and successfully 'traded' in and out of the stock or been an institutional investor who has received discounted stock in the numerous capital raisings the global insurer has been forced to make. Overall though, shareholders have been neglected and diluted while normally losing money. Plain and simple!
Over a one, five and ten-year time frame, QBE's share price is down 21.75%, 48.5% and 16.2%. In comparison, the S&P/ASX 200 (Index: ^A XJO) (ASX: XJO) is up 1.4%, 20% and 43.4% over the same periods.
So, using the term disastrous to describe the past decade is no exaggeration. However, looking to the future, what's in store for investors?
The future is of course an unknown but there are some reasons to believe that the next decade may offer better returns than the last. In fact year-to-date, things appear to be starting to steady at the insurance giant with the share price basically flat, compared with a 3% gain in the index.
Here are six reasons it could be worth sticking with your QBE shares…
- A floor might have finally been reached. Yes, it's been said before and it's dangerous to assume that there is no more bad news or further declines ahead. However, with the return on average shareholder funds sinking to 7.3% in the half year to June, there is cause for some hope that reversion to the mean may now come sooner rather than later.
- Argentina situation appears under control. QBE was caught off-guard earlier in the year by the increase in litigated workers' compensation claims occurring within its Argentinian insurance business. This was an unfortunate situation for the group but one which is unlikely to be repeated as QBE has moved quickly to boost its actuarial models and minimise further problems.
- Australian and New Zealand operations remain top notch. This region delivered a strong underwriting result in the most recent half with an impressive combined operating margin of 86.9% and an insurance profit margin of 18.6%. The performance of the ANZ region shows what the group is capable of, the key now is to replicate this success across its other regions particularly Europe, North America and Latin America.
- Fundamental changes set to yield results. QBE has obviously been through an incredibly painful period. However, with new management now appointed and a major strategic review undertaken which is leading to a more streamlined operation and the exiting of non-core business lines, QBE is being reset on a firmer footing for the future.
- Asset spin-off. One of the conclusions from the strategic review is the decision to spin-off via an IPO the group's Australian lenders' mortgage insurance business. Given the market's current appetite for IPOs, this has a high likelihood of being successful and will further strengthen QBE's balance sheet.
- Dividend growth. The past two dividends paid total 27 cents. This represents a very low dividend payment compared with a few years ago when the group was paying out over $1 in dividends per year. With the share price currently trading at $11.53, this implies a fully franked yield of just 2.3%. While this isn't particularly appealing, the potential for a meaningful increase in future dividend payments is.
