QBE Shares Take a Plunge After Profit Downgrade

QBE Insurance Group (QBE) is starting the year on a rough phase as it announces the 40-50 per cent decline in profit and 62 per cent in dividend, causing its shareprice to drop to an eight-year low. This follows yesterday's bad news regarding the involvement of the insurance company's subsidiary Balboa in a pricing probe in the US.

The insurance company reported that its profit earnings for 2011 is expected to drop by 40-50 per cent of the $US1.278 billion it earned in 2010. According to QBE, the downgrade of the company's profit is due to the $US1.6 billion hit from last year's natural disasters in Thailand, Queensland, Victoria and Melbourne, and the Euroepean sovereign debt crisis. Because of the profit plunge, the board has to cut the total dividend to be paid among its investors from $1.28 cents to 87 cents to protect QBE's capital levels.

Adding to more dismay, the shares of QBE, which traded as high as $35 five years ago, fell below $10 for the first time since 2003 before it closed down to $11.35. The share price decrease has caused QBE's market cap of $14.5 billion to shed $2billion to $12.5 billion.

Although extremely disappointed, QBE Chief Executive Frank O'Halloran is determined to get back up again. "We have a fantastic business that has outperformed the market and I can tell you we are absolutely determined to make up this shortfall and get it going again," he said.