QBE Insurance Group Limited’s [ASX:QBE] stock price dropped this morning by 0.15c, sitting at AU$9.76 at time of writing.
QBE (originally North Queensland Insurance Company Ltd) is Australia’s largest global insurer, offering general insurance products to personal, business and institutional clients. It has over 46 established agencies around the world, including in metropolises such as London, Singapore, and Hong Kong.
In 2018, their market capitalisation reached AU$13.45 billion.
Why the decline?
Climate change is continuing to challenge the insurance industry, as unpredictable weather events and catastrophes increase. The randomness and intensity is extremely complex to price.
Additionally, because of the increased energy consumption, pollution and global greenhouse emissions, insurers are pressured to consider the significant environmental damage and degradation as a future risk on the industry.
These issues are creating significant strain and economic risk for the major Australian giants.
What does this mean for investors?
QBE has had a difficult 12 months, to say the least — it’s been one of the worst performing stocks on the ASX this year.
It may be because they’re struggling to keep up with environmental challenges.
Its five-year average of -3.5% is much lower than the industry’s annual average of 1.5% — clearly nowhere near as attractive as their competitors.
QBE accounts for 7.9% of Australia’s general insurance industry valued at AU$68.3 billion — relatively lower than its competitors; Insurance Australia Group Limited (IAG) at 17.3%, Suncorp Group Limited (SUN) at 15.1%, and Allianz Australia Limited at 7.6%.
So, should you still consider investing, especially with such a low price?
Despite growing challenges, the general insurance industry is expected to grow 4% annually over the next five years.
QBE’s wide geographic scope and established divisions in North America, Latin America, Europe and Asia Pacific have improved the distribution network and provided the business with plenty of opportunities to tap into new markets, it also is an effective hedge when one region is underperforming.
However, with such troubled recent stock performance, the company will need some momentum to catch up to industry leaders.
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