Can the QBE Share Price Break Out of its Slump?

QBE Insurance [ASX:QBE] shares have been in a price slump since the 11th this month. On yesterday’s open, QBE continued this trend. In early trading on Tuesday, the QBE share price was down 9.23% since Wednesday last week. QBE shares dropped to a low yesterday of $12.42. QBE hadn’t dipped this low since September.

QBE chart 18Nov15

Source: Bloomberg

QBE Hoping To Increase Earnings

QBE presented to the UBS Australasian Investment Conference Tuesday morning. The presentation recapped the latest performance results. The take away message QBE left investors with was that price competition is becoming more difficult. QBE highlighted that prices are aggressive within North America, Europe, Australia and New Zealand.  QBE’s ‘tough pricing environment’ seemed more like an excuse rather than a reason for tough times.

The resulting competitive prices have left QBE revising profit figures…

QBE’s Net Earned Premium (NEP) has decreased by 12% since last year.  QBE’s insurance profit margins are also predicted to be towards the bottom end of the forecast range, 8.5% to 10%.

However, there is a good chance that this is the bottom.

The Australian Business Review has hinted the low on Tuesday might not be broken. QBE’s share price has touched $12.42 before on 7th September. On this occasion QBE’s price quickly jump back up from this point. The ABR is assuming this low will provide much needed support to investors.

But QBE looks to the Federal Reserve to help out with their declining profit margins.

Why Interest rates are important for the QBE share price

QBE is now looking to the Federal Reserve interest rates.  On 17th December the Fed will make their decision on whether or not to raise interest rates.

Potentially, if interest rates rise, the Australian dollar could be set to fall further. QBE could increase profits from a low Australian dollar.

QBE’s prices would become more competitive. And Australian profits from overseas would increase due to the improved exchange rate.

Härje Ronngard
Contributor, Money Morning

 


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