The $19 valuation does not seem far off to me. At a simplistic...

The $19 valuation does not seem far off to me. At a simplistic level:

QBE has forecast NEP at $US15.5B - $US16B, and an insurance profit margin of 11%.

So insurance profit is forecast at $US1.71B - $1.76B.

Add earnings on shareholder funds of ±$US0.2B and subtract interest costs of $±$US0.3B, and you get profit before tax of $US1.61B - $1.66B (assuming no further writedowns of intangibles this year).

Historical tax rates have been around 20%, so profit after tax of $US1.29B - $1.33B. This equates to earnings per share of $US1.06 - $US1.09 per share. At current exchange rates that is $AUD1.17 to $AUD1.21 per share. Current market (and industry average) p/e is around 14.6, which would give a valuation of $17.08 to $17.66.

But this does not account for:

- the increase in discount rates which is massively to QBE's benefit;
- the increase in investment income that will result from higher interest rates in the US;
- the (to date) benign catastrophe environment;
- the cost reduction measures;
- ongoing above inflation increases in premium rates;
- any upside in the US business (such as is happening in crop right now).

Net result is that I am very comfortable holding at these levels, at least to see what comes out of the half year results.