The shares of QBE Insurance Group Ltd (ASX: QBE) have entered a new holding pattern. For the majority of 2015, QBE's shares have traded between $13 and $15 as a lack of natural disasters or meaningful announcements mean the shares look range bound until the half-year results come out.
It's interesting to note that this is pretty standard for QBE. At times over the last five years, especially through 2011 and 2012, QBE's shares have traded for long periods in fairly well-defined bands. As the financial year's now finished, now's a good time to review what QBE does and why it's a company worth investing in.
What's QBE?
QBE Insurance is a global insurance (and reinsurance) company with operations in 43 countries and policyholders in more than 140 countries. The group operates five regional divisions: North America, Latin America, Europe, Australia & New Zealand and Asia Pacific.
QBE Australia and New Zealand (A&NZ) provides all major lines of general insurance cover for personal and commercial risks. This includes everything from property, car and travel insurance, to business liability and trade insurance, marine cargo insurance, and even workers' compensation insurance.
QBE Asia Pacific provides similar products to A&NZ in 10 markets in Asia and 6 Pacific Islands.
QBE Latin America has been a problem lately with the group's workers' compensation insurance generating massive losses. Regardless, QBE has direct insurance operations in seven countries in Latin America, using intermediaries to write all lines of Property and Casualty insurance in the region, with a focus on complex solutions for commercial clients.
QBE Europe is massive! Similar to A&NZ, QBE offers a huge range of insurance policies to European customers, covering everything from offshore energy production, to car and travel insurance, and professional liability.
Finally, QBE's North American business has been in the news because of the major droughts that have damaged the division's profitability. QBE offers crop insurance in the US, as well as its standard range of personal and business lines, and speciality products to the marine and aviation sectors.
QBE also offers reinsurance. This is insurance for insurance companies and QBE's good at it! It offers four reinsurance lines, Property, Specialty, Casualty/US Multi-line and European Multi-line. These lines can be complicated and QBE prides itself on its underwriting discipline in reinsurance.
Why Invest in QBE?
I believe there are a few very good reasons to invest in QBE:
- Earnings are starting to recover. QBE's new management team has undertaken a massive body of work to repair the balance sheet and restore underwriting discipline following four years of poor earnings.
- QBE provides excellent exposure to rising US interest rates. QBE holds over US$28 billion in investments and cash. These are currently invested primarily in bonds and cash. Although the weighting is being shifted into more growth assets, a large portion will remain in bonds, meaning that QBE will see a profit rise when US interest rates rise.
- QBE's volatile. QBE's share price fluctuates wildly, giving investors plenty of opportunities to buy in at good prices.
- QBE's dividend is returning. I like the fact that QBE's dividend is currently restrained. It shows the discipline required by management that sacrifices short-term cash in shareholders' hands for longer-term growth. This is what more companies need to do and will result in a higher dividend payment over time.
- Global exposure. Yes, global exposure has also damaged QBE's earnings over time, but I would prefer that than to invest in an insurer exposed to only Australia where one bad year of storms and fires could wipe out shareholders.
The bottom line?
