QBE up 5pc as CEO Pat Regan clears the deck

If only QBE announced a $1.2 billion loss every day.

QBE CEO John Neal. Picture: Renee Nowytarger

If only QBE announced a $1.2 billion loss every day.

Shares in QBE rallied more than 5 per cent yesterday, closing at $10.99, the day after new chief executive Pat Regan announced his first earnings downgrade at the group since taking over from John Neal, who left the role following three downgrades during 2017.

Yesterday’s rally in QBE stock means the share price rose more than 50c higher than before Tuesday’s profit warning, which was sparked by the cost of recent bushfires in California and a string of severe storms in Australia last month. Those catastrophes pushed QBE further into the red than previously thought.

However, while shares were initially bruised by the shock ­announcement, investors have apparently welcomed Mr Regan’s plan to turn the company around, which he has labelled “brilliant ­basics”.

QBE has been a source of disappointment for investors in ­recent years after decades of ­expansion and acquisitions have resulted in a complex, sprawling and unpredictable global insurer. Mr Regan is considering selling a number of businesses, exiting a number of countries, and writing less high-risk policies.

Citi analyst Nigel Pittaway said the line in the sand “may now be drawn” and Mr Regan’s overhaul “give cause for hope that this is the end of QBE’s disappointments”.

Global insurance premiums rates should be rising, after 2017 turned out to be the costliest year in the history of the insurance ­industry, which should provide a tailwind to QBE’s bottom line over the near term.

WEB Business QBE share price

Cyclone Debbie, which hit Queensland in March, the recent hurricanes Harvey, Irma and Maria, which devastated the ­Caribbean, Texas and Florida, an earthquake in central Mexico and other disasters have punished the insurance industry. Global reinsurer Munich Re reckons insured global losses from natural and man-made catastrophes last year exceed $170 billion, well above the average of the past decade.

But although premium rates are rising, analysts are salivating over QBE’s potential asset sales.

“We see QBE shifting from global to multinational with emphasis on core markets of Lloyds, UK, North America, and Australia & New Zealand,” Morgan Stanley analyst Daniel Toohey said.

UBS analyst James Coghill said QBE was “true to its form” with a negative surprise.

But, he said the stock was still worth buying.

“With a significant negative catalyst now out of the way and ongoing evidence of modest upward premium rate pressure across QBE’s key markets, we’re holding our nerve,” Mr Coghill said.

Macquarie analysts said the sale of the Australian personal ­insurance lines, along with lenders’ mortgage insurance business, Argentinian operations and other Latin American businesses, and pullback from Asian markets excluding Hong Kong and Singapore, could reap $2.1bn for QBE.

Velocity Trade analyst Brett Le Mesurier was less convinced.

“Ridding themselves of such businesses increases the expense ratio which pushes the combined operating ratio (a measure of profitability) up further,” he said.

“The previous CEO had this problem and this is one reason why the company did not progress under his leadership.”