QBE Insurance to deliver earnings growth, higher dividends.
This week Money asks Fat Prophets for a hot stock pick - QBE Insurance (ASX:QBE)
QBE Insurance Group is one of the world's top 20 general insurance and reinsurance companies, with operations in all the key insurance markets. QBE is listed on the Australian Securities Exchange and is headquartered in Sydney. They employ more than 17,000 people in 38 countries.
QBE's strategy of diversification by product and geographical exposure is fundamental to managing their insurance and reinsurance risks and has been a vital ingredient in the group's success. They have developed a unique QBE culture which is based on six core values and effective risk management practices and controls.
QBE aim to grow the business through their existing extensive networks and acquisitions of insurance businesses, portfolios and teams of underwriters that meet their stringent criteria for minimum return on equity and EPS accretion in the first year of acquisition.
QBE Group has successfully delivered more than 135 acquisitions since their first acquisition in 1982 and has grown substantially over the last 10 years. QBE's gross written premium was US$16.3 billion in 2014.
Increased money supply and low interest rates have been key earnings headwinds for the insurance sector. However, with the Federal Reserve closing in on a cash rate hike, now is the time to be looking at the likes of QBE Insurance. As history attests, there has been a strong positive correlation between QBE Insurance's share price and US ten year bonds.
Having already done a lot of the heavy lifting, recent announcements support our view that QBE Insurance is continuing to progress its transformation. This, in combination with a looming inflection point in the insurance cycle, provides QBE Insurance with the opportunity to deliver above average earnings growth and ultimately higher dividends.
Disclosure: QBE is held in the Fat Prophets Concentrated Australian Share Model.