ValueLine: Why I like QBE

6 Comments

1. 

   scott
   March 19, 2010 at 7:52 pm:

   hi roger, do you think the reason why the stock has performed poorly of late is because of the risk of natural disasters? Usually when there is a natural disaster the share price tanks, and people avoid the stock

   • 

     admin
     March 21, 2010 at 9:16 pm:

     Hi Scott,

     I have to admit that my comments interpreting the share price movement of any stock, has to be taken with a grain of salt. Unless I asked every person who bought or sold the stock over the last months, why they did, we will never know.

2. 

   Nick
   March 19, 2010 at 5:35 pm:

   Thank you for the article Roger, an interesting read.

   You mentioned at the start that Warren Buffet likes investing in insurance companies and he even appears on some of their advertisments. Insurance companies are perfect for Mr Buffet because they provide him with ‘float’ to invest in his other companies. As he is perhaps the best qualified person in the World to do this it is not hard to understand the attraction.

   The quality of an insurance company can also be determined by it’s COR or Combined Operating Ratio. This measures the percentage of premiums paid out by the company as a percentage so obviously the lower the better. It is my understanding that QBE’s COR has been even lower than those insurance companies (on average) owned by Berkshire Hathaway which testifies to the ability of Frank O’Halloran their managing director.

   I bought a few shares in QBE recently at $21.40 on the day of their half yearly announcement and whilst currently these are registering a small loss I believe they will perform very well as an investment over the next 10-20 years.

   Interesting to note also that recently 3 directors at QBE, including the MD Frank O’Halloran have bought shares (around 45 000) at an average price of $20.80 an outlay of over $900 000. Please check these figures though as I am just writing from memory.

   • 

     admin
     March 21, 2010 at 9:21 pm:

     Hi Nick,

     You will note my comments regarding the valuation of QBE. Its not the bargain it has been in the past. I concur with your views about the Combined Ratio. Did I leave that out? I will have a look. Perhaps it was edited out over at the Eureka Report for space considerations. QBE’s performance by most if not all measures is exemplary but yes, the world of insurance is changing and will become more challenging if recent weather events are at all related to climate change (see Tim Flannery’s book The Weather Makers).

     • 

       Nick
       March 22, 2010 at 9:01 am:

       Very true Roger re. if recent weather events are at all related to climate change… although I see this as a positive because what is already an inelastic industry will become even more inelastic (people simply could not afford to do without.)

       Secondly, premiums will rise in accordance with the new possible dangers offsetting losses to potential profit and as you mentioned in your article, reinsurance which QBE is involved in.

       I hope this (climate change) will be able to be effectively negated through technology and ideas although should it not be it will be customers paying the price.

       Lastly, extreme weather phenomena will play havoc with investor psychology (short and long term) although perhaps investors could also see this as a positive as chances to invest (in fearful periods) will become more regular.

       Thanks again for this blog, it is a very enjoyable read.

     • 

       admin
       March 22, 2010 at 7:57 pm:

       Hi Nick,

       Thank you kindly for sharing your thoughts.