It’s remarkable how far and how fast a market rumour can travel. All it took last week was a highly speculative article in the Australian Financial Review to set off a firestorm of share-buying. It was a good illustration of the difficulties large insurance companies face in buying their equally large rivals, and in hosing rumours down.

In last week’s case, the AFR “Street Talk” column suggested it might be a good time for QBE to repeat its move to take over IAG. After all, IAG’s share price was below the level of the unsuccessful $8.7 billion offer QBE made in May last year, and the falling value of the US dollar in relation to the Australian dollar might tempt it to rebalance its assets.

Chief executives and directors don’t like market rumours. They can lower share prices just as easily as they raise them; and companies don’t normally comment on market rumours, anyway.

If the rumour-mongers had dug a little deeper than a newspaper article full of attractive speculation, they might have noted a comment in the UK Insurance Post on September 23 by QBE’s Europe CEO Steve Burns, who in a long interview mentioned in passing that a second shot by the company at IAG “is not going to happen”.

QBE discovered in April last year that the only way to make a move on companies as complex as IAG is to get their board of directors on side first – especially a company like IAG which has a massive retail shareholder base. When approaches by QBE Chairman John Cloney to his IAG counterpart didn’t get a result, QBE went public. It got messy from there.

So last week many industry and stockmarket conspiracy theorists figured there would be complete silence from both boards as they wrangled over a price for IAG behind closed doors. Therefore, the best evidence that something was going on was that there wasn’t any.

But the rumour needed to be killed off. There would be few better ways to achieve that than to wheel out QBE’s CFO Neil Drabsch, who like CEO Frank O’Halloran tends to be polite, direct and thoroughly convincing. An interview on cable channel CNBC ensured the message got through globally without much tweaking by finance journalists.

During the interview Mr Drabsch also spoke about what QBE wants from any acquisition. It’s no secret, but it’s also nice to be reminded occasionally that companies exist which focus first on the issue of shareholder value. There’s no ego-driven dramas like the AMP-GIO merger disaster of 1999, or the over-priced excess in Suncorp’s 2007 acquisition of Promina.

First off, Mr Drabsch made it clear that the arrival of Mike Wilkins as chief executive at IAG a few weeks after the last attempt failed had changed some things. “The IAG approach we made last year was done at a time when the previous CEO [Mike Hawker] was in play,” he said. “We saw potential synergies.”

Now, he says, “we have a new CEO in that business. The synergies have been taken into account.”

But more importantly, economic conditions have changed. “I think you’ll find that the returns to QBE on putting together the two companies, at any premium, would only give very modest earnings per share.”

Mr Drabsch says that while QBE will keep an eye on the local market for opportunities – “companies like IAG, Suncorp [or] any other business like that are always in our sights” – the opportunities for QBE at this point are offshore.

“Because we are in the global market we’ve got many opportunities coming to us,” he told CNBC. “For example, in the period since January last year we’ve made 14 acquisitions. We’ve committed around $3.5 billion in funds to that to generate very substantial premium income and with expectations of return on equity of over 20% on that outlay.”

Those acquisitions include the Australasian and Asian mortgage insurance businesses of PMI Group for $1.03 billion in August last year, and five insurance operations in the US and Europe in December for around $700 million. QBE also spent $315 million in July buying 100% of Elders Insurance and a 75% stake in a joint venture agency.

IAG would find it hard right now to provide the sort of returns those businesses bring to QBE, and Mr Drabsch admits the 15-20% return on equity hurdle makes it difficult. “Our capital has to compete, and businesses like IAG, if they were considered to add value to our shareholders, would have to be able to show they make that sort of return,” he said. 

“The current economics certainly do not indicate we would be able to generate those sorts of returns; and earnings per share would similarly come under strain, particularly in the formative years.”

And that was that. IAG’s share price dropped dramatically and calm returned. Frank O’Halloran has said many times that QBE would like to make a large acquisition in Australia, and situations and scenarios do change.

But Mr O’Halloran and his colleagues won’t be missing any sleep over lost opportunities in the Australian market. QBE can afford to be patient locally, and the US and European markets are providing plenty of terrific opportunities.