Insuring its own future – the QBE turnaround
QBE (ASX:QBE) has been a long-term holding of the Australian Eagle Long portfolio, albeit one that has faced its share of missteps over the years. However, in recent periods, the business has undergone a clear and deliberate transformation under current management, with a renewed focus on profitability, discipline and simplification. The company’s recent internal improvements including more disciplined underwriting, portfolio simplification and stronger capital management are increasingly being recognised by the market, just as external conditions have turned favourable. The current environment of rising insurance premiums and higher bond yields plays directly to QBE’s strengths, providing a supportive backdrop for earnings momentum and improving returns on equity.
A key driver of the turnaround has been the strategic exit of non-core and underperforming business lines. QBE has materially scaled back or exited operations in Asia, Latin America and other specialist portfolios that lacked sufficient pricing power or market positioning. These changes have redirected capital toward markets where QBE holds genuine competitive advantages. As a result, the Group’s combined operating ratio (COR) has consistently improved, reflecting more disciplined underwriting and reduced exposure to loss-prone segments.
At the same time, the macro environment has provided a tailwind. U.S. short-term bond yields remain elevated, driving a substantial uplift in investment income from its about A$30 billion investment portfolio. This is particularly impactful for QBE given the relatively short duration nature of the book. With cash earnings underpinned by both underwriting and investment returns, the company’s profitability has become more balanced and resilient.
Capital management has also improved markedly. After years of disappointing shareholder returns, the company has begun increasing its dividend payout ratio, reflecting greater confidence in an improving earnings quality profile and surplus capital generation. We believe further improvements in capital efficiency are likely, especially as attritional claims normalise and internal capital buffers strengthen.
Despite this progress, QBE continues to trade at a valuation discount to insurance peers. In the investment team’s view, the market has yet to fully reflect the structural improvement in underwriting quality, operating leverage from simplification and the recent uplift in investment income. With management now executing on a clear strategy in addition to tailwinds from rate increases and capital discipline, we see scope for further earnings growth and a multiple re-rating over the medium term.
Disclaimer:
The Montgomery Fund, The Montgomery [Private] Fund, and Australian Eagle Trust owns shares QBE Insurance. This article was prepared 20 May 2025 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to QBE Insurance, you should seek financial advice.
Sean Sequeira jointly established Australian Eagle Asset Management in 2004. Sean was appointed Australian Eagle’s Chief Investment Officer in 2016. In addition to stock selection and analysis, Sean is responsible for all aspects of the investment process. Sean is head of Australian Eagle’s portfolio risk committee and process integrity committee. He is also one of the three investment team members that make up the portfolio construction committee.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
