trading and shorters

There has been a lot of talk here about QBE as a good trading stock and good for shorting. Both are probably true, especially in a year (or years) of above average disasters.

The shorters generally know what they are doing. Any major disaster will have an insurance hit which will send the price down even if the hit is within expectations. All they have to do is sell early and wait until the share price appears to have bottomed and buy back in - the result is a handy profit. In fact their selling early is part of the price reduction process. Traders will profit from the same variability.

However, that does not alter the fact that QBE is a very safe long term investment. The fact that they did not predict the severity of Sandy does not mean they did not allow for the possibility of disasters and it certainly does not mean they don't understand the risks. As someone here has already said, the result will be an increase in premiums and the expectation of good profits when claims normalise (with an average or less share of disasters).

It is amazing how supposedly well informed people have little understanding of how insurance works. I heard one recently on the Alan Kohler show on a Sunday morning say, in relation to Sandy, something like "I don't have much sympathy if they don't understand their risks". In fact they do understand their risks and it is rare for claims to exceed premium income. This is what contingency margins and reserves are all about and if long term variability increases, premium margins will be increased with the liklihood of increased profits for shareholders.