Image source: Shutterstock

Highlights

  • Macquarie projects FY25 gross written premium (GWP) growth of 4.3% for QBE Insurance, despite currency headwinds.

  • Profitability remains stable with a forecasted combined operating ratio (CoR) of 92.6% amid challenging weather events.

  • Shares trade at a premium to peers, but analysts say it's warranted due to higher investment income exposure.

Analysts at Macquarie are optimistic about the outlook for QBE Insurance Group Ltd (ASX:QBE), suggesting the stock may currently be in the buy zone for investors seeking reliable blue-chip exposure. Reaffirming their “Outperform” rating, the broker sees continued upside potential, backed by solid fundamentals and supportive industry trends.

In a recent note, Macquarie outlined its rationale, pointing first to robust growth in gross written premium (GWP). The firm estimates QBE will post a 4.3% GWP increase for FY25, bolstered by 5.5% growth in constant currency terms—slightly ahead of the company's own mid-single-digit guidance. However, foreign exchange pressures are expected to act as a modest 120 basis point drag on this growth figure.

While analysts remain cautious around certain market-specific factors—such as lower crop pricing year-on-year—they expect clarity from offshore performance before adjusting forecasts. Despite weather-related disruptions like Californian wildfires, Cyclone Alfred, and widespread Queensland flooding, Macquarie believes QBE's combined operating ratio (CoR) remains intact at 92.6%, aligning closely with the company’s target of 92.5%.

The broker has factored in an estimated AU$40 million in reserve strengthening, reflecting around 20 basis points, but notes catastrophe costs are still within the company’s FY25 guidance of AU$1.16 billion.

Beyond the operational metrics, Macquarie addressed QBE’s valuation, which is trading at a 13.3% premium to its international peers on a two-year forward price-to-earnings (P/E) basis. While this marks a notable divergence from its historical three-year premium average of just 1.2%, analysts argue the valuation is justifiable. The firm’s relatively higher exposure to investment income and the depressed multiples of some UK insurers help explain the elevated trading levels.

Macquarie’s AU$23.00 price target suggests a potential 7% capital gain over the next 12 months. When coupled with the expected 3.6% dividend yield for FY25, the total prospective return stretches to around 10.5%.

In its conclusion, the broker maintained confidence in QBE’s North American turnaround strategy.