QBE’s cost-cutting plan and new reinsurance program have largely received a tick from analysts, but lingering caution remains over the delivery of performance improvements.

Morgan Stanley analysts say QBE’s business momentum is the best they have seen in a decade, Deutsche Bank says it will “fundamentally be a better company” following the savings program and Morningstar sees light at the end of the tunnel for long-suffering shareholders.

Australia’s only global insurer said yesterday its three-year efficiency program will deliver $US130 million ($180 million) in savings. The company also announced it has sold insurance operations in Puerto Rico, Indonesia and the Philippines as it simplifies its global approach.

Deutsche Research Analyst Ross Curran says while QBE “is still overly complex, and the current mix of assets under-delivers relative to its cost of capital” successful execution of the simplification strategy “would address our concerns”.

QBE has locked in a new reinsurance program that will cost $US125 million ($173 million) less than the previous version. But it will also have a $US50-$US100 million ($69-$139 million) earnings impact next year due to an increase in the catastrophe budget to $US1.4 billion ($1.9 billion).

The insurer’s shares dropped 4.1% yesterday amid calls for a more extensive cost-cutting program, concerns related to the catastrophe budget increase and an expense ratio target that includes an outlook for very modest and selective premium growth. The shares regained around 3% today.

JP Morgan analysts led by Siddharth Parameswaran say that “for the first time in a long time the company appears to be providing guidance that in our view is conservative”.

They also point out that as a global commercial insurer, “QBE is subject to the vagaries of the insurance cycle. Fortunately, trends in the cycle are currently improving, and there could be further upside from interest rates, providing a tailwind for earnings growth.”

Macquarie says QBE has set the course for earnings per share growth, but the announcements yesterday have lengthened the runway.

“The devil was in the detail, but the trajectory to business improvement has been prolonged compared with our prior expectations,” its analysis says.

Citigroup says it retains a "buy" call on QBE shares, and notes that the insurer confirmed that it expects a better result next year. An expense ratio target of around 14% for 2021 appears "at face value to be conservative if all the targeted savings are achieved", it says.

The new reinsurance program changes the dynamics of QBE’s exposure to risk and will have a range of impacts highlighted by analysts.

Deutsche says the changes reduce the group’s exposure to large single events but increase the exposure to medium-sized events in a rebalancing of horizontal and vertical cover.

“The regulator prefers vertical cover, as it lowers the balance-sheet risk, and this change will result in about a $100 million improvement in the regulatory capital position,” it says.

The new program particularly delivers benefits in high risk and benign years and is less favourable in “normal” catastrophe years.

Morningstar says it is not concerned by the potential $US50-$US100 million ($69-$139 million) net increase in potential claims expense as QBE expects to deliver an improved combined operating ratio and higher profits next year compared with yet-to-be-announced results for the current period.

Management has made good progress in turning the business around, but more needs to be done, it says.

“We like the plan to simplify and reduce expenses on top of moving to a far simpler operating model, but as usual there are ample execution risks and QBE has been driving hard down this path for several years with only modest success,” analyst David Ellis says.

“We think new CEO Pat Regan and his senior executive team are well placed to leverage the hard, remedial work done by previous CEO John Neal.”