What does QBE do?
QBE Insurance Group Ltd [ASX:QBE] is a global insurance company. Its focus is on general insurance and reinsurance.
What’s happening to QBE’s share price?
Today, QBE reported better-than-expected results for the 12 months to 31 December 2016. All the insurance metrics showed an improvement. As a result, the share price was up nearly 4.5% at one stage during the day.
What now for QBE?
QBE is slowly rebuilding its business after delivering poor earnings growth for the past few years. That has largely resulted from two factors: overpaying for past acquisitions (resulting in write-downs), and weaker earnings from investment markets.
You see, insurers earn a profit in two different ways. Firstly, from underwriting, or insuring against, risks. Secondly, from investing the money received from policyholders before paying it out.
It might be years before an insurer has to pay out against an insurance policy. In the meantime, they invest the money and generate a return on it.
With interest rates at historic lows over the past few years, QBE’s returns from this part of the business have been falling too.
As you can see from the chart below, QBE has been in a long-term bear market. After peaking at $35 per share in 2007, the shares fell below $10 at the end of last year.
Buying support quickly came in. Now, with the business improving, the long-awaited turnaround could be underway. In early trading today, the share price hit its highest level since late 2015.
In saying that, the share price came off the boil this afternoon. But new highs in the coming weeks would confirm that QBE’s global insurance business is recovering from years of underperformance. In that case, QBE could be a good long-term holding at these levels.
Never assess a stock’s fundamentals without looking at the chart too. Combining fundamental analysis with charting can yield powerful results.
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Editor, Money Morning