UNDER long-time chief executive Frank O'Halloran, QBE was Australia's most adventurous (still surviving) insurance company, making scores of acquisitions and getting a hold in foreign markets.
The US business has recently come back to bite it and new CEO John Neal has taken the axe to American exposures. Hurricane Sandy losses, he said, would cost $US350 million ($A338 million) to $US450 million, crop losses in the US drought of $US355 million, and another $US786 million would stem from a blow-out on individual claims and a broom being run through other US exposures.
All that means the insurance margin will fall to 8 per cent from 12 per cent, the company has been forced to raised $US500 million in debt and a $US750 million to $US1 billion equity raising is on the cards. The market didn't like the news and pushed the stock down from $12.85 to a low of $10.88, from where it has recovered a little.
But if we take the long-term view on QBE, some interesting things are emerging on the chart, this week produced by Robert Brain, a director with the Australian Technical Analysts Association.
QBE has had quite a run in the last decade. In 2001, before September 11 spoiled the party, the stock tried to break through what was then a resistance level of $11.81. The fallout from September 11 clobbered QBE and it didn't break through the resistance until 2004.
Then there was a steep run-up through 2006 to the all-time high of $35.49 in August 2007. It is notable that the frenzy that drove QBE into the stratosphere was not accompanied by high volumes, as the lower chart shows, meaning investors did not widely support the irrational exuberance.
The steep fall from late 2007 was followed by kick-ups in 2008 and 2009 but the general market malaise eventually won out and QBE has been in a downtrend since the 2007 highs. Now the chart is showing what Brain calls a "change in polarity", with the $11.81 resistance point looking like a support level - meaning QBE may have plumbed the depths of its lows and could now consolidate.
Also observable in the volume chart from 2010 onwards is that, as the share price fell, there were some steep volume spikes, which would normally indicate large numbers of investors jumping ship. But their size and random appearance lead Brain to suggest they may be indicators of high-frequency trading carried out by computers.
A comparison of QBE's performance chart (not shown) over 10 years shows QBE has made investors about 30 per cent (excluding dividends), while competitor IAG is up about 80 per cent, and Suncorp, which also has a bank attached, is down about 4 per cent.
Frequently Asked Questions about this Article…
What caused QBE’s recent share price decline and market shock?
The article says QBE’s share price fell after heavy US losses were revealed. Management flagged Hurricane Sandy costs (US$350–450m), US drought crop losses (US$355m) and about US$786m from other US individual claims and exposures. That hit underwriting margins and forced capital actions, which prompted the market to push the stock down from about $12.85 to a low near $10.88.
How much did QBE estimate the Hurricane Sandy and US drought losses would cost?
According to the article, QBE estimated Hurricane Sandy losses at roughly US$350 million to US$450 million, and crop losses from the US drought at about US$355 million.
What happened to QBE’s insurance margin and why does it matter for investors?
QBE said its insurance margin would fall to about 8% from 12%. A lower insurance margin generally means underwriting profitability is weaker, which can reduce earnings and pressure the share price until margins recover.
Is QBE planning a capital raising or debt issue after the losses?
The article reports QBE was forced to raise about US$500 million in debt and indicated an equity raising of around US$750 million to US$1 billion was on the cards to strengthen the balance sheet after the US losses.
What actions did new CEO John Neal take regarding QBE’s US operations?
The article notes new CEO John Neal ‘took the axe’ to American exposures, meaning he cut back the company’s US business after it became a major source of losses.
What does the technical chart analysis say about QBE’s share price outlook?
Technical analyst Robert Brain pointed out a ‘change in polarity’ around the $11.81 level: that past resistance may now act as support. The chart shows QBE ran up to an all-time high of $35.49 in August 2007, fell into a downtrend thereafter, and may have now reached levels where consolidation is possible.
Why are there big volume spikes on QBE’s chart from 2010 onwards and what might they mean?
The article observes steep, irregular volume spikes as the share price fell. While large volumes often indicate many investors selling, the random size and timing of these spikes led the analyst to suggest they may instead reflect high-frequency computer trading activity rather than broad retail selling.
How has QBE performed versus competitors like IAG and Suncorp over the past 10 years?
The article compares 10‑year performance (excluding dividends): QBE returned about 30%, IAG about 80%, while Suncorp (which also has a bank attached) was down roughly 4% over the same period.
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