update

So far, touch wood, March has been benign in terms of major cats.

At the end of march, Qbe would have earmarked an allowance of circa $400 million for major cats under its 10.5% of NEP allowance.

So far, with 13 days to go, we would be trading at circa $100 million in major claims, some $300 million under budget or an extra 25 cents in EPS.

Obviously, the possible severity and frequency of future major cats can eat way at this but at this stage, mngt must be cautiously happy with progress this year.

I think the biggest surprise so far has been the resilience of the Aust job market which all bodes well for growth in business insurance premiums esp workers comp & PI where Qbe has a significant market share. Also, Aust bond yields have risen recently with the more likely scenario of no further rate cuts required to spur the local economy. This will provide a boost to investment income and lower future claim allowances.

To those of you concerned with the recent decline in share price to around $13.40 today, don't be too alarmed. As of wednesday last week (12 March 2013), there were 56.7 million shares shorted. This will explain the recent share price drops from low $14's. Like last time, at some stage, these shares will need to be covered.

Another event that took my eye, was the decision to stop underwriting home owners warranty in the South Australian market and reviewing the Western Australian market due to its inherent lack of profitability. Already, this decision has paid off with the South Australian govt granting Qbe exclusive rights to act as an insurance agent rather than underwriter like it does on the east coast. This will provide Qbe with a sizeable income without the risk of claims.

To put bluntly, John Neal seems to be making the hard decisions to drop nonperforming business, reduce company overheads and increase margins on premiums earned.

Excluding any major cat events, I still think we will get to $15 by end of march 2013 especially after John Neal confirms this trading update at the AGM on the 26th March 2013.