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This will be a profit downgrade, the word on the street is reinsurance costs continue to move up and the synergies QBE was expected to find from its North American assets are have yet to be bedded down.
This will be a disappointing development for QBE; many had expected the NA assets to be a bright spot for QBE in FY14 as US yield curves sharpened and AUD/USD weakened.
The share price has struggled for months after delivering a fairly lacklustre FY13 report in August, however most had been positioning for a stronger FY14 on a softening of claims and the expected bounce in renewal rates. Again, this appears not to be the case and the market fears the worst.
Having seen several surprise downgrades in the past three months, expect a fairly violent drop on the open Tuesday next week. There will be a gap on the open, so be aware it could be filled due to overreactions. I would look for a quick in/out trade in QBE, with a buy in the first half an hour looking to close out on the gap being filled.
Your stop loss should be 5% to 7% under the entry price as the downgrade may be so severe that the market really does cash out and this trade is a risk, but if the gap is fill in the preceding three to four hours the trade a long call should see a nice interim return.