Core Business Activities And Financial Performance Of QBE Insurance Group

Required Insurance

QBE Insurance Group Limited provides a guarantee for the general insurance and reinsurance risks in the whole world. The insurance group functions all the way through European Operations North American Operations, Latin American Operations, Australian & New Zealand Operations, Equator Re segments and Asia Pacific Operations (QBE Insurance Group Annual report, 2015). Additionally, it manages Lloyd’s organization and moreover provides investment organization services. The corporation was introduced in 1886, and its head offices are situated in Sydney, Australia. The present study is based on the evaluation of core business activities and assessing their financial performance over the years.

1. Core Business Activities of QEB Insurance Group

The Australian administration needs to have definite kind of insurance to defend the public, and moreover, lenders need insurance to defend their investment.  While on the other hand, other strategies might be a cautious investment that is based on the kind of business people run.

Required Insurance

 In case the person works inside the company as an employer than the authority of the company needs to provide definite types of insurance (Pilbeam, 2018). At a minimum, company pay for workers’ compensation and unemployment insurance. These companies offer financial safety to the employees in case they are hurt while working or lost their job.  Moreover, employees do not pay any premiums for such policies. Additionally, they could deduct the premiums if employees pay as a business expense at the time of filing taxes.

Liability Insurance

The company offers the Liability insurance policies that pay the lawful fees and judgments connected with negligence, accidents, and professional errors. The administration needs several business and experts to hold liability insurance (Henderson, Peirson and Howieson, 2015). For instance, trucking business should have common liability insurance, and physicians ought to have professional liability insurance. In case the notice is given to the individual by the lawsuit, then the main role of the company is to appoint lawyers to stand them in court.

Property Insurance

Insurance companies have a provision for Property insurance which is of three kinds: special, basic and broad. In accordance with the insurance website, the following items can be covered by policies, for example, machinery, business’s buildings, inventory and even companies copyrights and trademarks. Moreover, the major function of the company is to compensate for damages or losses after storm damage or robbery. Company anticipate changing some of this trade in the second half and upholding their development in a gross written premium over 10% for the complete year.

2. Assessment of Major Changes in the financial performance of QBE Insurance Company

OEB Insurance Company has produced an additional outstanding guarantee result, in spite of an increase in huge individual risk and disasters claims as of diverse climate connected losses and somewhat lower on the whole average premium rates. The mutual functioning ratio for the half year was 82.1% in contrast with 82.4% for the similar phase last year. On the other hand Insurance profit, however, the % of net earned premium was 28.5% in contrast with 25.8% for the similar phase last year (QBE Insurance Group Limited Annual Report, 2017).  Further, it has been measured that Gross written premium enlarged 12% to $1,480 million and net earned premium was up 7% to $1,131 million.

Liability Insurance

The strong premium expansion for the half year pursues the procurement of extra sharing channels in the precedent 12 months and the move of portfolios by mediators from additional insurers to QBE. Consumer preservation persists to be high. On the whole premium rate reductions on transformed trade were less than 1% and however, that is which more improved than company predictable at the commencement of the year. Furthermore, it is examined that the commission ratio enlarged to some extent from 12.7% to 12.8%. As well as the expense ratio enlarged from 12.4% to 14.4% because of higher costs connected with an innovative planned proposal to get better efficiencies and their interface with mediators going ahead in advance.

3. Key Financial Ratios

Liquidity Ratios

Narayanaswamy, (2017) asserts that the current ratio is applied in order to ascertain that organization’s capability of paying off its short-term liabilities with assets. Further, higher the current ratio more the firm is able to pay off its liabilities. In the present case, the current ratio of QBE is below 1 indicates that the firm will not be capable of paying back its debt in case they came due at that point in time.

Quick ratio refers to the organisation’s capability of fulfilling its short-term debt with its liquid assets. Further, companies having quick ratio 1 or above indicates that firm is completely equipped with enough assets that can be immediately liquidated to pay back its current liabilities. The Quick Ratio of QBE Insurance Group Ltd is less than 1, which signifies that company is not able of paying back its obligations in short-term and vice versa.

Operating Cash Flow Ratio

With the help of this ratio, it can be computed that how well a company will pay its current liabilities from the cash which is generated from its operations. Utilising cash in contrast to income is sometimes a better sign since cash is how bills are generally paid off (Ehiedu, 2014).  Operating cash flow ratio higher than 1 signifies that organisation has produced more cash in a period than what is required to pay back its current liabilities. Moreover, the ratio of the company in the present case is less than 1 in both the year which it has generated less cash in a period than what is needed to pay off its current liabilities.

Profitability Ratios

Return on assets ratio can be defined as the indicator of how gainfully an organisation is comparative to its total assets. Further, it provides an idea as to how effective administration is at utilising its assets to produce income. Furthermore, the company has a positive return to assets ratio in both the year that is 0.14 in 2017 and 0.08 in 2016 which indicates an increasing profit tendency (QBE Insurance Group Limited, 2017).

Diamond and Kashyap (2016) stated that return on equity ratio reflects the amount of net income returned as a percentage of shareholder equity. A company with a higher return on equity indicates how well it gives return to its shareholders. QBE Insurance Group Ltd has a lower return on equity ratio as compared to last year which indicates that the company is not giving well to its shareholders.

Property Insurance

Return on investment ratio is a performance measure which is utilised to assess the effectiveness of an investment (Rosemann and vom Brocke, 2015.). It tries to directly calculate the amount of return on a specific investment, comparative to the investment’s cost.  The ratio represents that QBE’s return on investment has increased in 2017 that is from 2.50% to 3.40% which implies that the company is operating efficiently. Gross Profit Margin represents the per cent of total sales revenue that the organisation maintains after incurring the direct costs associated with manufacturing the products and services by a firm (Rutkowska-Ziarko,2015). The gross profit margin ratio of QBE Company is low as compared to the previous year which represents that profit earned by them is less than the year 2016. Thus, the company requires improving the performance to a significant level.

Net Profit Ratio evaluates the per cent of sales which is preserved by firm subsequent to incurring direct as well as indirect expenses (Brigham and Ehrhardt, 2013).  There is an increase in the costs of the company which results in a lower net profit margin due to which costs requires to be controlled in an efficient manner. There are two sources from where shareholder’s equity can be obtained.

The primary source is the funds which are originally invested in the organisation, with additional investments made thereafter (Baños-Caballero,García-Teruel and Martínez-Solano, 2014). The second source from where shareholder’s equity can be obtained is retained earnings which the firm is capable of collecting over time with its operations.  Moreover, the higher the amount of shareholder’s equity, more the shareholders are enabled to in the event that the company is closing.  In addition, shareholder’s equity ratio is less than the previous year.

Activity analysis ratio

Assets Turnover Ratio associates to the amount of sales created per dollar of assets (Baker, and Logue,2017). Higher ratio signifies that form is producing more income per dollar of assets. At the same time in the present case, the company’s assets turnover ratio of the year 2017 is 0.33 which is less than that of the year 2016 that is 0.39.  Further Accounts Receivable Turnover Ratio is utilised to find out the time taken in collecting debts. Further, the high accounts receivables turnover ratio of QBE indicates that organisation functions on the cash basis or that its expansion of credit and collection is effective.  In the current case, the company has no inventories. Thus no inventory ratio has been assessed.

Capital Structure Analysis Ratios

Capital structure ratio assesses the manner in which an organization finances its daily operations as well as activities for growth through the application of different sources of fund. Debt to ratio equity assesses the dependency of organization on outer resources. In the present case of QBE Insurance Company, it can be assessed that the company is not aggressive in financing as the ratio is low for both the year. However, it has been increased to somewhat extent in the year 2017, but the same has not enhanced to a significant level that it can be categorized as a company which is aggressive for financing.

Assessment of Major Changes in the Financial Performance of QBE Insurance Company

The higher ratio represents the company is aggressive in financing through the application of debt source of funds. The ratio represents that QBE Insurance Company has sufficient funds in order to accomplish its daily operations with smoothness. Higher ratio leads to volatile income, but at the same time, it has to incur additional interest expense. But, in the present case, no such issue will arise as the company has appropriate funds.

Interest coverage ratio is applied to ascertain the easiness with which the company is able to pay of interest relating to outstanding debt. The ratio is determined by dividing Earning before interest and taxes from Interest Expenses.  The higher the ratio, the company is able to pay off its interest with easiness. In the present case of QBE Insurance company in the year 2017 the ratio is appropriate, i.e. 4.67, but the same is negative in the year 2017 due to loss. Thus, the situation it too critical in the year 2017 as it is below one and same represents that the company is not generating appropriate revenue in order to cover interest expenses.

Capital Market Analysis Ratios

Capital Market Ratio Analysis analyzes the saving and investment within sources who have provided the capital (retail investors and institutional investors) and users of capital (government, individuals). In accordance with assertions of Weygandt, Kimmel and Kieso (2015), price Earnings ratio represents the relation of market value and earnings per share. In the case of QBE Insurance Company, it can be assessed that in the year 2016 the company is having a positive relation in the year 2016 but the same turn to negative in the year 2017.

Thus, it can be analysed that the performance was excellent in the year 2017, but after analyzing the performance of the year 2017, investors will not anticipate higher earnings due to loss. Through assessing market to book ratio, it can be assessed that shares are overvalued in both the years. Dividend payout ratio assesses the manner in which earning assist the dividend payments.  Thus, in a situation when shares of a company are overvalued than investors are advised to sell the shares because soon the prices will fall as they are overpriced.

In the case of QBE Insurance Company it can be assessed that in the year 2016 the company has appropriate earning and due to the same, it has significantly supported dividend payments. But the situation is opposite in the year 2017 and reason behind same is the occurrence of losses.

4. Overall Assessment and future prospects of QEB Company

The management in QBE Group in managing its assets is very effective due to which its return on assets is constantly positive. At the same time, since management is not effective and the same leads to a decrease in the net profits of the company as there is an increase in costs. Based on the recent analyst predictions, the company is assessed to sizably raise its income by 10.58% in the next three years. At present EPS of $0.67

, shareholders could anticipate upcoming year’s EPS to be approximate $0.77. Further, positive income growth might attract investors on the surface, but it is significant to contrast this anticipation to QBE’s track record. The same will provide investors framework as whether growth prospect is acceptable and reinforced by past trends. In order to assess whether growth rate anticipation is justified, past performance of the company should be considered.

Conclusion

In accordance with the present study, conclusion can be drawn that QBE Group is performing well which can be noticed through their improvising financial ratios in 2017 in comparison to 2016. Further, the company is operating in a very efficient manner which results in an increase in return on investment. The analysis shows that the company is able to provide good returns to their investors and have the potential for further growth. 

References

Baker, T. and Logue, K.D., 2017. Insurance law and policy: cases and materials. Wolters Kluwer Law & Business.

Baños-Caballero, S., García-Teruel, P.J. and Martínez-Solano, P., 2014. Working capital management, corporate performance, and financial constraints. Journal of Business Research, 67(3), pp.332-338.

Brigham, E.F. and Ehrhardt, M.C. 2013. Financial management: Theory & practice. Cengage Learning.

Diamond, D.W. and Kashyap, A.K., 2016. Liquidity requirements, liquidity choice, and financial stability. In Handbook of Macroeconomics (Vol. 2, pp. 2263-2303). Elsevier.

Ehiedu, V.C., 2014. The impact of liquidity on the profitability of some selected companies: The financial statement analysis (FSA) approach. Research Journal of Finance and Accounting, 5(5), Pp 81-90.

Henderson, S., Peirson, G and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.

Narayanaswamy, R., 2017. Financial accounting: a managerial perspective. PHI Learning Pvt. Ltd.

Pilbeam, K., 2018. Finance & financial markets. Macmillan International Higher Education.

QBE Insurance Group Annual report 2015. 2015. [PDF]. 

QBE Insurance Group Limited 2017. 2017. [PDF]. 

Rosemann, M. and vom Brocke, J., 2015. The six core elements of business process management. In Handbook on business process management 1 (pp. 105-122). Springer, Berlin, Heidelberg.

Rutkowska-Ziarko, A., 2015. The Influence of Profitability Ratios and Company Size on Profitability and Investment Risk in the Capital Market. Folia Oeconomica Stetinensia, 15(1), pp.151-161.

Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & managerial accounting. John Wiley & Sons.

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