jpm: qbe overweight 12.80 target

Investment Thesis
We think that QBE is going through a rebuilding phase following a number of years of profit downgrades relative to
guidance and a decline in insurance margins from the 20% peak to 5.5% in FY13. The company is undertaking initiatives to
improve profitability. In an environment of low growth in the domestic general insurance industry, and a life insurance
market where there remain structural challenges, such a story may appear more attractive.
Valuation
We have an Overweight rating and a Dec 14 DCF valuation of $12.70, and a price target of 12.80.
We maintain our terminal growth rate of 3% and recognition of the value of franking credits. To value QBE, we continue to
use a standard DCF but exclude the allowance we used to make for future acquisitions, as the company seems to be
concentrating currently on divesting assets rather than growing through acquisition.
Risks to Rating and Price Target
Downside risks to our PT and rating include adverse large loss and catastrophe trend experience internationally, low
interest rates and volatility in credit spreads, a deterioration in economic conditions leading to an increase in recessionlinked
claims experience, lender placed run-off occurring quicker than expected, any other causes of superimposed inflation,
reserving concerns, and concerns about the large loss allowances being adequate for QBE and the risk of ratings downgrade.
Upside risks include rising real interest rates, a sharp upward turn in the global insurance cycle, a depreciating A$, a
stronger macro environment in the US and a lack of catastrophes, and lack of further reserving issues.
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Accumulate if you have faith...looking like good value imo