Updates: Good News From QBE, Seven Group, Transfield Surprises With A Slide

Are the gods of insurance (weather, the earth and financial markets) finally smiling on QBE (ASX: QBE) and two tough years?

Judging by the company's AGM in Sydney yesterday, the answer to that question would have to be a qualified 'yes'.

The first quarter of 2012 has seen an absence of major disasters against the first three months of 2011 when we had the Brisbane floods, as well as wet weather elsewhere, cyclone Yasi and the second and more destructive quake in Christchurch.

And financial markets are steadier than they were at the end of last year, although they did start 2011 on a similar note to those now being enjoyed by QBE and others.

Remember it was the re-emergence of the eurozone crisis and the second bailout of Greece and then threats to Italy, Spain and the bailout of Portugal that shook global confidence and markets and pushed them to breaking point in the final three months of last year.

But this year has opened sunnier with spreads on fixed interest securities narrowing as confidence returns and market rates slowly rising in the US, Australia and Europe for the same reason.

Ahead lays a possible slowdown in the US (still feared by the Fed) and a possible sharper slowdown in China, as possible threats to this sunny start.

Europe is still there with Greek elections in the offing and fears a new government might try to unpick the second bailout, increasing concerns about the strains in Spain from another round of budget cuts and a rise in unemployment and a vote in Ireland on the new fiscal pact.

But they were absent at yesterday's QBE AGM.

Adding to the confident outlook was the news that "premium rate increases exceeding our expectations of overall real average increases of 5%," according to presentations delivered to the AGM.

"Net large risk and catastrophe claims for the 1st quarter around 1% of 2012 targeted net earned premiums (NEP), compared with 5.5% of 2011 NEP this time last year," part of one presentation said.

(That is a drop of $US700 million from the troubled first quarter a year ago compared with the quarter finished last Saturday.)

The company said that "risk-free rates increased from 2.10% at 2011 year end to an average 2.26% at end of March.

"Credit spreads have reduced since December 2011 - at end of March, we have recouped all of the 2011 unrealised losses

"In 2007, prior to GFC, our investment portfolio produced a gross yield of 6.3% compared with 2.4% in 2011, excluding FX - the reduction in cash rates alone was equivalent to US$960M of investment income on current portfolio

"Currently above gross investment yield target of 3.0% for 2012.

"Reinsurance expense on renewal is up 7.5% - largely covered by premium rate increases in our inward reinsurance business."

The meeting was told the company has identified US$50M expense saving in 2012 - with target savings increasing to US$200M in 2014.

So the upshot was no more downgrades, for the time being, and a feeling that the company will do vastly better than in 2011 which was described as one of the worst years for catastrophic events.

Earnings fell 45% to $US704 million ($A683.79 million),with all that and more happening in the second half when the company earned around $US31 million, a tiny amount for such as large, global insurer.

QBE said that in its Australian business, overall average premium rates were set to increase by more than 7%.

Gross written premium in 2012 was expected to grow by 7% in the Australian business to $4.6 billion, while globally the company is forecasting gross written premium to grow 3% to $US18.7 billion ($A18.16 billion).

The company previously forecast a slight rise in gross written premiums.

The company is targeting a combined operating ratio (the key method of judging an insurers profits and performance) of 89% (the internal target) and less than 89% on a financial basis. (100% represents break even.)

The internal target for the company's all important insurance margin is 15% (and the financial target for the margin is 13%).

That is about what the margin was in 2010 and is sharply higher than the 7.1% recorded for the nasty year that was 2011.

The upshot is that it's heaven for an insurer, more money coming in than is being paid out in claims and other costs. If this continues all year, QBE will have a solid 12 months.

No wonder the shares have bounced this year and traded up at $14.50 yesterday.

That was an increase of 60c or more than 4%.

By the close that gain had been cut back to 49c for the day, the shares closing at $14.39, its highest close for the year so far.

That means the shares have bounced 24% since the $11.50 low was hit in late February as the company revealed the bigger than expected loss and the $600 million of capital raising.

QBE is edging its way back into the market's good books.

And investors took to Transfield Services shares with a big stick yesterday after the company had cut its 2011-12 profit estimate by close to 20% on Tuesday evening.

The shares plunged 15% at one stage to $2.10, before they struggled 9c higher to close at $2.19 for a loss on the day of a still nasty 12%.

The company asked for a trading halt on Tuesday and the company told the market that it now expected its net profit for 2011-12 would be $105 million, before amortisation.

In February, the company had forecast full year net profit of at the lower end of the $130 million to $135 million range.

Transfield said its resources sector services company Easternwell had been hit by $7.4 million of unforeseen costs relating to a recent cyclone in Western Australia and wet weather in Queensland.

Another $1.6 million in unforeseen costs linked to extreme weather in South Australia had also hurt the group.

A further $16 million in costs came in the form of a provision on a construction contract in Transfield's New Zealand business.

"Rain and associated access delays in January and February were budgeted for across Easternwell and the rest of the Transfield Services Australian business," Transfield said in a statement released late on Tuesday.

"But the cyclone in Western Australia, as well as unusual extreme weather in South Australia and Queensland in late February and early March were not budgeted for."

It's not the first time the company has upset investors.

In August 2011 it revealed $19.7 million full year loss for 2010-11.

That contrasted with the $73 million profit it posted the previous year.

"Transfield Services continues to grow its order book, now standing at $11 billion," the company told the ASX.

"In addition, the Company has in excess of $650 million of preferred work expected to be converted to confirmed contracts in coming weeks, and $2.7 billion in potential contract extensions.

"The Company also advised that its pre-emptive right has been triggered, entitling it to acquire Flint Energy Services' shares in the FTS Joint Venture in Canada.

"Transfield Services is valuing the shares in FTS owned by Flint and is currently proceeding in accordance with the pre-emptive process in the shareholders' agreement, as well as considering all other options.

"The Company's on market buy-back of shares remains in place, and will recommence following this update," the company added.

Those share buybacks are handy things when companies get into financial problems and the shares are sold off.

But we got a rare profit update yesterday from Seven Group Holdings (ASX: SVW), the key listed company in Kerry Stokes' empire.

It told the ASX that it's now looking at a sharp rise in full year profit, and is looking at taking on a major new business.

"Excluding significant items and the impact of transactions, assuming current market conditions and growth continue, the company anticipates the full year Underlying Net Profit After Tax (excluding significant items) to be up 20% to 30% compared to the prior year 2011 result," the company said in a presentation.

The company took an impairment hit in the December half year from the drops in the share prices of Seven West Media (33% owned) and Consolidated Media Holdings (25% owned).

Those write-downs were more than $165 million.

Yesterday Seven Group said, "there has been a share price recovery in SWM and CMH since period end. The Group will be positively impacted by the reversal of impairment charges at 30 June 2012 if the share prices of these investments remain at these levels."

"On 20 February 2012, SGH announced the sale of vividwireless to Optus for a sale price of $230m. The contract remains subject to a number of material conditions including approvals by ACCC and FIRB and re-issue of the spectrum license by ACMA."

Seven Group revealed that Caterpillar's recent takeover of Bucyrus, the mining equipment group in the US (it's big in coal draglines and associated equipment, plus shovels and other earth movers), had produced an opportunity in Australia for a new business line.

Seven Group's WesTrac arm is a major distributor of Caterpillar products in WA, China and NSW.

It said WesTrac "is still in negotiations with Caterpillar Inc. in relation to the acquisition of the Bucyrus distribution business.

"Whilst these negotiations are not yet complete and the details remain confidential it is expected that this will occur around the time of the June year-end."

As well, in late January Seven Group completed the takeover of the minorities in National Hire and moved to 100% ownership.

Seven Group shares rose 2c to $1.515, Seven West Media shares lost 4c to $3.94.