QBE told to pull up stumps in US
About a third of QBE's profits come from the US, but earnings have recently been hit by heavy claims from severe storms, a drought and a legal stoush over its mortgage insurance business.
In a report, CLSA analyst Jan van der Schalk argues it is time for QBE to "pull up stumps" in the US because its businesses there are a drag on overall performance.
QBE is a key provider of insurance on troubled mortgages known as "lender-placed insurance" - which has been targeted by US authorities in recent months. Last week QBE settled with the state of New York for almost $US10 million, after the state alleged insurers in the sector were profiting from paying kickbacks.
In a move that Mr van der Schalk conceded was partly guesswork due to the amount of publicly disclosed information, the analyst sought to model the effect of more settlements with other states and a further deterioration in its crop insurance business.
It concluded that group-wide return on equity would fall from 10.1 per cent and to 9.6 per cent and margins would drop from 12 per cent to 11 per cent.
"It rather begs the question, why have the US at all?" he said in a note. The analyst, who has a "sell" rating on the stock, said QBE lacked the capital and scale to make a difference in the US and should focus on other countries instead.
Frequently Asked Questions about this Article…
CLSA analyst Jan van der Schalk argues QBE's US operations have been a drag on overall performance because of repeated setbacks — heavy storm claims, a drought hit to crop insurance, and legal problems around its mortgage (lender‑placed) insurance business. He says QBE lacks the capital and scale to turn the US business into a positive and should concentrate on other countries instead.
About a third of QBE's profits come from the US. That matters because problems in the US — like natural‑disaster claims and regulatory or legal actions — can materially hit group earnings and margins, which is why analysts are scrutinising the company’s exposure there.
The article lists several US pressures on QBE’s earnings: heavy claims from severe storms, losses in its crop insurance business due to drought, and a legal stoush over its mortgage insurance operations (lender‑placed insurance) that has attracted regulatory attention.
Lender‑placed insurance (insurance placed by lenders on troubled mortgages) is a key part of QBE’s US business. US authorities have recently targeted the sector, alleging practices like kickbacks. QBE settled with New York over such claims, highlighting regulatory risk in that line of business.
According to the article, QBE settled with the state of New York for almost US$10 million after the state alleged insurers in the sector were profiting from paying kickbacks.
CLSA’s modelling — which the analyst acknowledged involved some guesswork because of limited public disclosure — suggested group return on equity could fall from about 10.1% to about 9.6%, and margins could drop from roughly 12% to about 11% if there were further settlements and deterioration in the crop insurance business.
The analyst at CLSA carries a 'sell' rating on the stock, reflecting his view that QBE’s US troubles and limited scale there make the company a less attractive investment right now. For everyday investors, a sell rating signals caution and a prompt to review exposure to the stock and monitor developments closely.
Investors should watch for further regulatory actions or settlements in the lender‑placed insurance area, updates on crop insurance losses after drought conditions, and any corporate moves by QBE (such as a strategic retreat or capital reallocation) that respond to the US challenges highlighted by CLSA.
Call 1300 880 160
Start a chat
Schedule a call
