The insurance group (AU: QBE) shocked the market last week when it announced a likely slump in its full year profits. Just a few months ago, in August, it had projected insurance profit margin for 2011 would be a minimum of 11% based on an expected US$15bn of net earned premium. However, this margin is now expected to be 7% - 7.5%. The company maintains the outlook for 2012 is still positive as a result of strong premium rate increases being achieved in most markets (includ ...

Recommendation: I was guilty of being overly loyal to QBE last year and only sold shares in September at around A$14 (when they had started the year at A$18) at a time when Europe and the markets were looking very wobbly. However late, it proved to be the right decision in light of QBE’s latest announcement. QBE’s net profit is likely to be down by 50% for the year to December and, while a rebound is conceivable this year, much depends on what catastrophes may occur. These cannot be predicted of course but QBE has traditionally been an excellent manager of risk and I am concerned that it hasn’t been able to wiggle out of the latest series of disaster. I will have a closer look at the company next week but until then, AVOID (latest price A$11.32) AVOID at $11.32.