ANALYSTS DOWNGRADE QBE EXPECTATIONS

Two bank analysts have slightly reduced their expectations for the performance of Australia-based insurer QBE. Andrew Kearnan at Merrill Lynch has lowered his 2008 earnings per share estimate by 13% to AUD1.66, and his 2009 estimate by 4% to AUD2.15. Mr Kearnan wrote in a client note that this “mainly reflects the mark to market adjustments by QBE”. He also forecast a small drop in his premium estimate for 2008, down 1.7% to AUD13.1bn (US$8.88bn). Gross written premium for 2009 was estimated at AUD16.0bn, down from the AUD16.2bn previously forecast. Meanwhile at Crédit Suisse, analysts wrote in a client note that “we estimate that a drop in the absolute value of investment yields on technical reserves by 300 basis points leads to around 2.5% insurance margin declines and subsequent [earnings per share] decrease of around 15%, plus another 5%, due to lower returns on shareholder funds”. Crédit Suisse estimated that QBE needed to be able to push through an average price increase of 3.4% across its entire book if it is to offset this decline.