bloodbath reflects fundamental challenges

Not a good way to start my morning, I have to say. But as I mentioned last week, in short term, the share price seems overpriced at over 17-18x Price Earning multiplier.

Which unfortunately has not changed today. It was a shocker of a result. Not because it is so bad, but because everyone expected it to be better.

Here is the fact:
- Underwriting profit actually dropped from $494m to $453m. And every one in Insurance industry is having a better year in 2012 than 2011. Even IAG.

- This is covered by the fact that Investment income increased by 57%, but amortization increased fourfold to $407 million.

- Some investment bank called for write off of half of QBE equity a few months back; and it seems like they are doing it now... only in sneaky slow way to match their investment income increase. Amortization (in this case, of Goodwill due to removal of some brands to be replaced with QBE) is paper loss, so it reflect the fact that previous management overpay for their acquisitions.

- They are blaming the insurance result on LAST YEAR claim. Why don't they provide for it last year then? Seriously QBE... with 30+ years of insurance experience (which now is leaving the company in droves)... I expected better.

- North America is a SHOCKER. Yes, they warn us about it back in December. Sandy I can accept. It is act of God. But the loss in the crop insurance seems to be a repetitive issue. They admit it that Europe and Australia seems to have better "model" than United States (i.e. Less commission paid to agents for writing dumb bets).

The Future:
- The past is all about acquisition. Now the management is focusing on INTEGRATION. Taking the best method in one area, and applying it globally. That sounds logical. It sounds smart.

It is the equivalent of saying that to win 100 meter race, the strategy is to run faster. The strategy is OBVIOUS, but the IMPLEMENTATION will be the real question.

I sure hope for the company (and my bank account) that they can pull this out without messing up too badly.

The Uncontrollable:
Catastrophe, Investment return (fixed income yield), will always fluctuate. Can't imagine it to ever change - else there is no point for people to buy insurance. I can't imagine it getting worse. So the uncontrollable only has 1 way to go now - up.

Summary:
This company has more fundamental problem; which was hidden last year because everyone was having a shocker year in 2011. But the management is making the right sounds; let see if they can walk the talk. The potential of this company if they can... is humongous.