QBE - QBE Insurance Group

[Quant]

Across my desk today "" Any normalisation of inflation and interest rates will be a big help to QBE ""

 

[craft]

Look i have produced a sample set of data ( and a much much larger sample set looks exactly the same ) that backs up my claims , sorry i havent written a book to explain the sample set and the reasons the corellation is so strong but im a trader and not a university lecturer , the information to either refute or confirm my claims is out there . Maybe if you find out where QBE invest their cash the answer will come quickly . I am not here to convince anyone anything , ive pointed out why QBE has run up and ive laid the foundations of an edge if anyone cares to follow through ... good luck to all

QBE are risk adverse in their management of cash on hand and invest in governement bonds .. US primarily , its not a stretch of logic to see the effects of interest rate changes having a marked effect on the returns of this said money . It's all im saying , im not doing anyones work for them

The fact people dont trust my conclusions is fine but the fact i say " trust me " is not proof i cant be trusted . Ive done the work .... HAVE you .... enjoy your day

One more thing the only measure of a trader is P&L , and in this sample on a top20 its stunning given the time frame , i post these things to give others ideas but maybe i just go back to lurking . The only reward seems to be angst and derision

There may be correlation there possibly along the lines that both are effected by risk on risk off. But unquestioning faith that it will continue to exist because there is an underlying causal effect would be dangerous.


If you look at the QBE’s sensitivities, they are in fact the reverse of the relationship you suggest. An increase in bond rates subtracts from QBE’s short term investment P&L as QBE’s bond investment duration is longer than a reporting period and unrealised losses on bond products must be marked to market Perhaps the market is clever enough to look through current earnings to held to maturity returns – perhaps not.


Even if people are looking at increased held to maturity investment returns, the discount rate applied to holding QBE itself for an investor should also theoretically increase to compensate for the lift in the risk-free return, largely nullifying the profit increase.


A more obscure impact of a rising bond yield is that underwriting profit is increased short term as the discount rate applied to future obligations increases. However, this is a short-term impact as presumably rising bond rates infer a rising inflation rate that eventually subtracts from profitability as obligations increase at time of paying out. Changes in inflation adjusted bond rates should be a better causal indicator of long run profitability of QBE.


Credit spreads and changes in the steepness of the yield curve have much more impact on QBE’s investment income than straight changes in bond yield. Investment income itself is only a portion of QBE’s profit mix the other portion is Underwriting profit. The split for Investment profit /underwriting profit for QBE is generally in the ball park of half & half. In some ways, Credit spread, yield curve spreads and non-inflation changes to the discount rate can be thought about like commodity pricing to a resource company. The underwriting profit driven by the insurance premium cycle can be thought about like production volume.


“It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so.”

 

[Quant]

it works till it doesnt , we can pull the wings of this fly all day but i got better things to do . No-one said this is the " ONLY " driver of QBE but it is one of them nevertheless . Im done with QBE thread forever now

 

[craft]

trust me TNX drives the share price of QBE substansially , anyone who thinks differently is naive or misinformed but hey whatever floats your boat

So questioning the validity of this statement results in this.

it works till it doesnt

which would also be valid for any data mined correlation(could be price of pork belly's to QBE share price or any obscure data series you can lay your hands on, so long as the historical correlation exists) All things work until they don't.

Im done with QBE thread forever now

Not surprising - important conversation attempted on ASF are generally exercises in futility.

 

[Quant]

just avoiding the trolls , nothing more

 

[craft]

just avoiding the trolls , nothing more

Is everybody who express a different point of view to you a Troll? Naïve? Misinformed?

 

[galumay]

Its a pity this discussion ended in a hissy fit, its so important to challenge our bisases, invert our thinking and check for logical fallacies.

Quant, a more mature response would have been to recognise that stating that failing to share your interpretation meant we were naive and misinformed was always going to get a pretty rigorous response. Opportunity for self reflection there!

Having had the issue of the risk of confusing correlation with causation raised you then chose to be very defensive about how that might possibly inform your analysis better. Sometimes we make decisons that have positive outcomes that were based on wrong reasons - the opportunity to drill down and really understand why you had a positive outcome is one of the most powerful tools you can develop.

 

[UMike]

QBE breached its 50 and 200 day moving average late April.
Been moving up steadily ever since. Hope it continues into the new financial year.

 

[peter2]

QBE's latest results have disappointed the market yet again. There always seems to be one or more sections of their business that they don't manage very well. Are their business interests too diverse?

I put this into the never to be traded again list. Yes, one of my portfolio's did have a small parcel and sold for a loss yesterday before today's news.

 

[Calvin27]

It's a pretty good yoyo stock to be honest. Traded it 4 times with great success.

 

[skc]

This Harvey won't be too kind for QBE...

 

[greggles]

Anyone have any thoughts on QBE at the moment? After falling from $13.50 to $10 from May to October it now appears to be recovering and is currently at $10.74.

 

[peter2]

Oh no, help me. I'm liking the current chart of QBE. There's an imminent BO looming (>11.20).
It's been such a disappointment over the past eleven years. Management have mishandled the corporate risk for the past decade. Why should I think they can do better in the future? The indicators on the monthly chart remind me of many of the poor reports. QBE is in my never to be traded list, but should I forgive them? Should I risk a little?

 

[kid hustlr]

Hi P2,

Smarter people on here than me can verify this although I wonder if this is an ok way to play rising bond yields?

 

[Sharkman]

for the last few years i've felt that QBE must always be given a really short leash, as it's just been one downside surprise after another. it's meant to correlate fairly well with rising bond yields, but you also have to deal with the risks of management disaster upon management disaster with this company.

i saw the same thing - you've gotta think the regretful buyers from last Nov and Jan looking to exit at these levels will be washed out soon and the resistance at 11.15'ish will be broken. but i'd rather trade this via options. i don't want to be stuck with max downside risk if yet another of QBE's infamous negative surprises hits the newswires in the coming weeks.

i looked at the Dec 11.50 calls and they were only trading at an IV of 15.7 today, that's really low for QBE (i haven't traded it for about a year but from memory it normally lives in the 20-25 range for the ATMs, just checked thru my trading notes and the last time i traded it in Jul '17 it was trading at a 26 IV). even the Dec 10.50 puts with the skew are only at around 17.6, still below the historical average. a sign of optimism... or complacency?

so i'm considering just buying the Dec 11.50 calls straight up, don't think there's a need to use a spread here, as vol seems cheap right now, which would've cost about 15c at the mid today (with the underlying at around $11). for 100 contracts (about 3000 deltas) that's a decay of $20 a day this far out from expiry. could alternatively do the 10.50-11.50 Dec risk reversal at roughly zero cost to express a bullish view without paying decay, getting about 5600 deltas for 100 contracts, but TBH i'd rather pay that sort of decay and limit my potential loss to 15c than wear huge downside risk in this name, given its history.

 

[peter2]

Thanks @Sharkman It's nice to see some examples of option plays.

Limiting downside exposure to the call premium in this company sounds prudent to me also.

 

[kid hustlr]

Thanks @Sharkman It's nice to see some examples of option plays.

Limiting downside exposure to the call premium in this company sounds prudent to me also.

P2,

Have you ever explored operating your daily momentum style via executing with options?

Might be hard in the small end of town I guess?

 

[peter2]

Yes.
Comparative Performance of Cfds and Options in Swing Trading US equities. P1, April 2008, Unpublished journal.

 

[InsvestoBoy]

QBE is currently one of the 12 stocks which fall in the MorningStar "Large/Value" style box, so I did buy some recently at $11.09.

 

[Sharkman]

yet another negative earnings surprise from QBE. probably should stop using that term i guess - once it gets to the point where you half (or even 75%) expect it to happen, can you really call it a "surprise" any more?

some pretty steep time skew in the options market today. the Dec ATMs were trading at around 34 IV, with the Jan $10 ATMs only a 24 IV. i haven't been watching the QBE options recently, at least i wasn't before today's "surprise", so i don't know whether the skew had anything to do with the update. normally you expect some sort of a skew going from Dec-Jan, since the Dec contracts normally expire before the typically low vol xmas-NY week, but that alone doesn't usually produce a whopping 10 vol skew.

the stock does seem to have been well supported at that $10 level from 2012-2016, which it routinely got hammered down to after each piece of bad news. with quick decay on offer i'm pondering a call calendar spread at 10 for around 13c, or a 10-10.50 call diagonal at roughly zero cost (assuming mids but you don't always get that when vol spikes!). it could well take a few days to wash out all the people fleeing for the exits before any recovery, and a few days is all that's needed for the near leg to expire worthless.

though that $10 level has since been breached and the new support level over the last few years seems to be around 9.40. anyone game enough to take a position in this name after this latest episode of what's been an extensive series of downgrades?