Hi Jossette,Some good replies and your posts are always worth...

Hi Jossette,

Some good replies and your posts are always worth reading.

I do have some of my own thoughts with this one though and theses are just my thoughts based on your responses.


Your statement of "EPS of 80-90c for FY14 x 15 = $12 -$13.50" would be based on a very negative outlook for next year. I understand that 2012 & 2013 have not been great years for QBE so you have a reasonable case to suggest this outcome.

However, with FY 2013 still having 2.5 months to go, I suspect the 2nd half is tracking a lot better than consensus.

I referred to an analyst report for this figure. But yeah, it's on the negative side, if they can get it together this could improve.

1. Agreed- poor 1st half results
Yep poor and you can see how analysts take a negative view.

QBE does not make or produce a tangible product like a resource company. They are bean counters that understand, evaluate and attribute a dollar amount to risk.

Now they know what their nett earned premium is, they know their outstanding liabilities including claims, commissions and should know what their admin costs are. So why on any given day/week can they not work out how they are tracking?

It just bewildered me that only a few months ago, John Neal told everyone that it was all on-track, he then came out a week later and reported something far different. How can shareholders have confidence moving forward when this happens?

This point goes back to my original view that QBE's business is too big and too complex.

2. US business is definitely a problem.
I think the crop business needs Congress to pass the 5 year farm bill to give security to the crop insurers what govt assistance wlll be provided. 2013 is looking like a bumper year so I suspect 13 to 14% return on $1.7 billion earned premiums will be achieved. The Lender placed business is the real problem. This cyclical business has had its margins squeezed by regulators and the volume reduced due to better economic conditions in the US. A lot of costs will have to be taken out of this business to make it profitable again or gaining new business to make up for the drop in premiums to around $1 billion a year.

Whenever you rely on governments to underpin insurance programs, there are always issues and a lot of buckpassing. QBE's crop business hurt them last year, it needs 3 or 4 good years starting from now.

Lenders place - see my next point.

3. Frank and Rumpler need to take responsibility for the balboa acquisition. I suspect any further bank distribution deals would deal with this issue better.
Yep, mistake. They went for a niche portfolio and didn't understand the raminfications if it went bad. BoA didn't help their cause, but QBE did not have a good enough contract in place.

3. US hurricane season technically finishes at end of Nov but it looks more than likely that the US mainland missed any events.
It's tracking okay, but it only takes one bad one.

4. Belinda Hutchinson needs to be accountable and I think her future will depend on the success of Neal next year.
Biggest problem at QBE. No one at a high level seems to be accountable for the mistakes. She was across every acquisition under Frank, many of them as chair. She is the head of a company and should have taken responsibility years ago. But shareholders give her another year?

5. Disagree. the new board appointments are experts in their fields in the US and Asia. Should help manage the expansion into Asia & Latin America and new markets in the US.
They are really bankers, not insurance people. They need die-hard insurance guru's to work out what is a good portfolio and what is rubbish. Mike Wilkins who now runs IAG, should have been enlisted when he left Promina. I just couldn't have imagined him buying lines of business that QBE has done in the past 4 years. The ROE he has got out of IAG has been nothing short of stunning.

6. Business model is becoming universal with the Manilla Claims Centre handling claims for Aust, US & Europe.
600 Australian jobs sent to Manila...hmmmm. I suppose someone has to pay for the mistakes.

7. Disagree. I think Frank's role as chairman of Steadfast is neutral if not slightly beneficial to the development of new business between QBE & Steadfast.
Never seen anyone move to another company and help the previous. His focus will be Steadfast.

8. Purchase of Elders shares was terrible. However the acquisition of the Elders insurance business was a masterstroke and will only get better with the rapid development of the Agriculture industry in Aust to feed the burgeoning Asian middle class.
Masterstroke? They were smashed in their first year with the floods. People were stunned when QBE bought this, no wonder Terry and Vince got flicked.

The other point is, if Elders hit the wall, how will QBE distribute their branded products with no network?

9. The global warming argument can be said about any casualty insurer.
Yep true.

10. This is true but with currency, interest rates and bond rates all tending to return to long term averages, this will massively increase Qbe earnings over next few years
Too much emphasis is placed on this, especially with the currency swings around the world. They need to get their insurance business in order to reap these benefits.

In regards to their assets, Qbe's only business running at top of its cycle would be the Australian business so I dont that is an option. If they can sell Pitt street on a 6% yield and they can use that capital to return 12%, it may be earnings accretive.
QBE Australia is sending it's job overseas, why not flick the business at the top of the cycle as well? QBE is worth much more as a some-of-parts business. It wont be "Australian" soon, most of I.T. HR, procurement and all the claims will be in Manila, so there won't be anyone left except head office people.

Qbe is the number 1 business insurer in Australia and is Australia's only true global insurer. The years of massive expansion has finally caught up but they are being addressed.
No 1, on what measure?

Australia's only global insurer?
It's something to be proud of when you are doing well but they haven't for many years and may struggle to ever get back to their best. In fact the last 5 years have been nothing short of disastrous and have costs shareholders billions of dollars. They'd have to make up all that and much, much more.

IAG were scorched for years for all bad overseas acquisitions which costs billions, especially in markets they knew little about (U.K.), but Wilkins on his arrival took the hard line and cut them lose. Analysts love them and their share price has more than doubled under him.

Being global doesn't mean you are the best.

P