Forum Archive Index - April 2001

["G Stolwyk" <stolwyk@wave.co.nz>]

Readers,

 

Please read the disclaimer at the bottom of this page.

 

 

It was a bad day on the US market with the Dow losing 292 points to 9486 and the Nasdaq falling by 110 points to 1673.

 

And how is one of our key stocks, QBE, performing amidst the doom and gloom of the US market? 

 

Nearly all stocks went down in Australia today, but QBE rose 25 cents to $A11.15. Why?  

 

Investors who are familiar with insurance companies will know that there are 2 main products : Insurance and Reinsurance. 

( Insurance companies will off-load some of their risk to reinsurance companies ).

 

References: < www.qbe.com.au > and my post of Jan 13, " TAB CHART / P. Maiden ".

 

Other posts can be found by selecting the Home page of Sharechat, enter: QBE in the search box- at top and on the left of the page, then click on the search button. 

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QBE insures and to some extent reinsures.

Reinsurers have lost a lot of money in the disasters of 1999 and the year after - QBE, because of superior management, did quite well during this time.

 

Competition was rife and this was followed by a big shakeout. 

That gave the remaining companies more muscle and gave the Reinsurers an opportunity to recover some of their losses.

 

At this point the Reinsurance cycle started and reinsurance rates have increased by a significant amount - up to 40 % during the last 18 months?

 

As a consequence, the flow-on effects on insurance started the Insurance cycle.

 

It is important to guess when these cycles start and decline: the latter as a result of more companies starting up and ensuing competition.

 ( Capable longer term investors tend to invest well before a cycle starts ).

 

The insurance cycle has begun and the consumers will see more premium increases as this cycle could continue - according to informed sources - to 2003 / 2004 at least!

 

This depends on the scope of disasters, the size of takeovers to come and resulting decrease in competition! 

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The New York Times reported yesterday that the largest insurance company in the world - by market capatalization - the US company AIG Group has bid $US 23 bill. for AGC, a well known company.

 

And this, after taking over Prudential! Obviously, AIG hopes to benefit from the current insurance cycle by getting in at an early stage!

 

While QBE is a smaller insurer, the takeover prices currently being paid for sound companies, must raise share prices all-round!

 

The reader may come to the conclusion that it is unwise to sell an excellent performing share in QBE at the beginning of an Insurance cycle!!!    

 

Gerry 

(Holds QBE)

 

NB. Students and longer term holders of shares may want to refer to these articles as the theory of cycles and timing of  investments can be applied to many companies in different sectors! 

 

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Disclaimer: Readers are not asked to buy, hold or sell shares or any other financial instruments. To do so would be at their own risk!