QBE Insurance Group has delivered exceptional financial improvement in 2024, with adjusted net profit increasing 27% to $1,729 million and the combined operating ratio improving to 93.1% from 95.2%. This transformation has been driven by deliberate portfolio optimization initiatives, including the exit from underperforming segments like North America middle-market and a $1.6 billion reserve transaction that de-risked approximately 10% of total net reserves.

The company's strategic pivot from "historic challenges" to "opportunities ahead" is evident in the strong divisional performance. International delivered an exceptional 88.7% combined ratio with 11% growth, contributing 72% of the Group's operating result. North America showed significant improvement with a 4.8 percentage point combined ratio improvement to 98.9%, despite ongoing challenges in Crop insurance. Australia Pacific improved to a 92.0% combined ratio while advancing key modernization initiatives.

Investment performance provided substantial support with a 4.9% total return, benefiting from higher interest rates and strategic portfolio positioning. QBE extended fixed income duration from 1.7 to 2.4 years and increased risk asset allocation to 14%, positioning for continued strong returns. The 40% dividend increase to 87 Australian cents per share with a 50% payout ratio signals management confidence in sustainable earnings improvement. With non-core run-off expected to halve in 2025 and continued benefits from portfolio optimization, QBE is well-positioned for consistent performance improvement.

QBE Insurance Group Limited is an international insurer and reinsurer headquartered in Sydney and listed on the Australian Securities Exchange. Operating across 26 countries with approximately 13,275 employees, QBE holds leading franchises across commercial and specialty markets organized into three operational divisions: North America, International, and Australia Pacific. The company's stated purpose is "Enabling a more resilient future."

QBE maintains particular strength in specialty markets and has established significant market positions in commercial P&C segments across its operating regions. In 2024, the company reported gross written premium of $22.4 billion, demonstrating its substantial scale in the global insurance market. Their business mix was: International (44% of GWP), North America (32%), and Australia Pacific (24%).

The company generates revenue primarily through insurance premiums across diverse product lines including commercial property and casualty, specialty lines, reinsurance, crop insurance, and lenders mortgage insurance. Their underwriting activities are complemented by investment income derived from their substantial investment portfolio ($30.6 billion in 2024). QBE employs both direct distribution and broker channels, with recent strategic focus on deepening distribution relationships around growth areas.

QBE delivered outstanding financial performance in 2024, with significant improvements across all key metrics. Gross written premium grew 3% to $22.4 billion despite strategic exits from underperforming portfolios, while net insurance revenue increased more substantially by 7% to $17.8 billion. The combined operating ratio improved significantly to 93.1% from 95.2%, driven by lower catastrophe costs and more stable reserve development.

Profitability metrics showed substantial growth, with insurance profit increasing 32% to $2.1 billion and net profit after tax rising 31% to $1.8 billion. This translated to a 2.4 percentage point improvement in adjusted return on equity to 18.2%. Investment performance was solid with a 4.9% return, supported by higher interest rates and strong risk asset performance.

The strength of these results enabled QBE to increase its dividend by 40% to 87 Australian cents per share, representing a 50% payout ratio. Balance sheet metrics also improved, with debt to total capital decreasing to 19.9% and the PCA multiple strengthening to 1.86x. The $1.6 billion reserve transaction significantly de-risked the portfolio, removing a major source of potential volatility and providing greater earnings certainty going forward.

Our financial forecast projects continued improvement in QBE's performance, with gross written premium growth accelerating from 3.0% in 2025 to 4.5% by 2029. This reflects both moderating premium rate increases (from 5.5% to 3.5%) and improving volume growth as portfolio exits cease impacting results. The combined operating ratio is forecast to improve gradually from 93.1% in 2024 to 91.5% by 2029, driven by portfolio optimization benefits and reduced volatility.

Net profit after tax is projected to grow from $1.8 billion in 2024 to $1.9 billion by 2029, with growth moderating in later years as investment returns normalize from current elevated levels. Investment income is expected to decline slightly from $1.5 billion to $1.4 billion as yields moderate from 4.9% to 4.2%, though this remains above historical averages due to strategic asset allocation changes.

Key assumptions include North America's non-core run-off halving in 2025 and becoming minimal by 2026, continued favorable prior year development, and catastrophe claims remaining stable at approximately 6.0% of net insurance revenue. The dividend payout ratio is assumed to increase gradually from 50% to 55%, supporting steady dividend growth while maintaining capital strength.

Our valuation approach combines traditional DCF methodology with insurance-specific metrics including P/B multiples and ROE/COE analysis, reflecting QBE's unique business characteristics as a global P&C insurer. The base case DCF-derived value of A$19.10 represents our primary valuation, incorporating a 9.1% WACC and 3.0% terminal growth rate applied to forecasted cash flows through 2029.

The valuation is closely aligned with our P/E multiple approach (A$19.15), which applies a 12.5x multiple to 2025E earnings, reflecting QBE's improved profitability profile and reduced risk. The P/B multiple approach yields a similar A$19.10 valuation, using a 1.8x multiple on 2024 book value per share, appropriate for a P&C insurer with an 18.2% ROE.

The ROE vs. Cost of Equity approach yields our highest valuation at A$22.05, highlighting QBE's potential for multiple expansion if it sustains its improved returns over time. Based on our analysis and weighting different methodologies, we derive an implied valuation range of A$18.50-A$21.50, representing potential upside of 5-22% from the current A$17.60 share price. The variance between methodologies primarily reflects differing perspectives on the sustainability of QBE's improved ROE and the pace of the North America transformation.

QBE has demonstrated improved resilience through strategic portfolio optimization, with catastrophe costs $232 million below allowance in 2024. The $1.6 billion reserve transaction significantly de-risked older accident years, while management expects North America's non-core run-off to "broadly halve in FY25." However, execution risks remain in managing the orderly transformation while maintaining underwriting discipline in a competitive market environment.

The company's enhanced geographical diversification and improved portfolio balance provide downside protection, while successful completion of strategic initiatives offers significant upside potential. Management's transparent risk disclosures and methodical approach to mitigation support confidence in their ability to address key exposures while capitalizing on growth opportunities.