One rip of the Band-Aid and QBE back to size QBE is still well capitalised and should be able to draw a line under this result and bounce back in 2014. IF there is one thing the sharemarket copes well with, it is disappointment. Big insurer QBE's "apologetic and disappointed" boss John Neal had no sooner uttered the magic words "impairment" and "$600 million" than the stock had conveniently fallen into line with the new reality, 22 per cent lower. Like a rapid rip of the Band-Aid the readjustment pain was over and everybody could get on with life with their expectations fully adjusted. People don't deal with it quite as well, particularly as QBE was one of my top 10 picks for this year and was cruising for a nice fat 30 per cent plus profit for the year before this rude interruption evaporated most of the annual gain. I wasn't the only one blindsided with most brokers tipping a stronger $1 billion plus profit result due to the lack of catastrophes and last year's reserve top ups and writedowns in the US businesses. Instead we can expect a $250 million net loss for 2013, despite the fact the actual new business and margins have improved this year. The problem is one of history with long tail claims such as workers' compensation, general liability and construction defects which were found to be wanting by groups of actuaries who were going through the US business with a fine tooth comb. At one level it is commendable that these sorts of lurking crocodiles have been discovered in a year in which the business can cope with them but on another it is a worry that a fresh lot of twisters next year might rip through the current year results just as the past year's become more benign. Such is the peril of investing in insurance companies that have a mix of long and short tail insurance risks - you are effectively taking on trust the actuarial calculations of claims, with yesterday's unexpected revelations at least proving that the company is not prepared to paper over the cracks and hope the past claims don't meet the new calculations. On the plus side QBE is still well capitalised and should be able to draw a line under this result and bounce back in 2014, although that was the story that we fell for last year. QBE moves to an avoid for now until the insurance weather patterns stabilise. When big companies fall through significant share price levels it is very tempting to pretend you are in the Myer sales in January and snap up the bargains. Qantas shares falling below the $1 mark is just such an occasion but it would be a big mistake to pin your ears back and wade in on this occasion. The extent of Qantas' problems is quite daunting and so far the appeals for Federal Government help to help guarantee their loans don't seem to be getting a lot of traction. While management are stressing the "uneven playing field" in Australian aviation, it is hard to see that situation changing quickly. Overseas airlines will keep competing hard and domestic competitor Virgin can hardly be blamed for targetting business travellers, trying to boost its market share with more flights and having a lower cost base. The brutal competitive reality for Qantas is that it needs to match or even better Virgin's costs and simultaneously improve customer service and perceptions if it is to maintain or grow market share and profits. And it needs to dramatically shrink its losses on international flights. The pace of change so far has been too slow and now relies on a shrinking and dispirited bunch of pay-frozen staff and executives to improve customer service and cut costs. Avoid.