QBE on the march again
With well over 100 acquisitions to its name over the past 25 years, the ever-acquisitive QBE doesn’t sit still for long.
Rather than analyse the reason QBE has added another five insurance operations to the list, it is perhaps more fitting to consider who’s next?
Locally, the options are obvious. With Suncorp’s shares trading at long-term lows and IAG yet to bounce back to the form of yesteryear, the price of local rivals may never be better for QBE.
The company has bolstered its position by raising $2 billion in capital from investors in a share issue, comfortably above the $US695 million ($1.06 billion) it needs to spend upfront on the new acquisitions.
QBE has agreed to pay $US575 million ($875 million) for US home and property underwriting agency ZC Sterling Corporation, as well as two further underwriting agencies in the US. It will pick up a renewal rights portfolio in that country and add a fourth underwriting agency in Europe.
CEO Frank O’Halloran says the buyouts fit QBE strategy to build distribution channels for profitable niche products.
Analysts at Credit Suisse says it’s a positive move, given that all the operations will be earnings accretive in year one, fitting the QBE mould nicely. In the first full year, the five acquisitions are expected to produce gross written premium of almost $US525 million ($799 million) and net profit of $US175 million ($266 million).
But there’s the lingering question: what’s next?
With plenty of information about IAG stored away, it’s easy to speculate that QBE could have another shot at IAG. It probably wouldn’t even have to change its strategy. Or is it primarily interested in collecting more medium-sized strategic insurance operations in the US?
The company now ranks in the top 25 global insurers, and is enormously experienced at absorbing companies all along the distribution chain, so it could probably achieve both over the next year or so while some very good opportunities will be available. And IAG is, after all, just another opportunity.
And the latest capital-raising is likely to fuel speculation it may yet have another tilt at IAG, or even go after Suncorp. The Brisbane-based insurer was trading at $7.49 in Friday afternoon trading, against $20.80 on October 1 last year.
Credit Suisse has given the company a “neutral” rating, saying QBE has raised capital above what it needs to reload the balance sheet for more bolt-on acquisitions.
That fact is not lost on Credit Suisse analyst Arjan van Veen, who told insuranceNEWS.com.au on Friday “QBE would definitely be interested” should Suncorp first hive off its banking division.
In a briefing note to clients last week, Credit Suisse said a Suncorp takeover remains a possibility, though it also notes that QBE would probably need to raise more capital for an acquisition of that magnitude.
Suncorp has indicated it remains interested in disposing of its banking division on the right terms, but last month stopped talking to potential buyers after it failed to attract a suitable offer and the Federal Government moved to guarantee bank deposits.
But would Suncorp, with a bank on the property register, be a good fit for QBE? Possibly not, Mr van Veen says. “It’s most likely that QBE wouldn’t have the appetite for Suncorp.
“QBE is an unlikely bidder for the whole company,” he told insuranceNEWS.com.au. “It doesn’t have a banking licence for a start. If Suncorp gets a reasonable offer for the bank then the insurance side will come into play, but the bank no longer has the same liquidity issues.”
Mr van Veen says a stand-alone Suncorp insurance business is a different proposition.
“If someone offered one times net tangible assets, excluding goodwill, and the insurance division re-rated to [the level of its] peers, then Suncorp’s share price would be $11 rather than less than $8,” he said.
Mr van Veen says the bancassurer model is becoming less prevalent.
“The market doesn’t necessarily give companies credit for a more diversified business – it simply focuses on the worst-performing part,” he said.
So Suncorp looks a less likely option than IAG, but there are plenty of other reasons why IAG isn’t the attractive prosect it was a few months ago. “You can never rule [another IAG proposal] out, but the world has changed a bit since then, and the relative prices are not as attractive.”
QBE understandably focused on the positives as the insurer released updated revenue estimates last week. The 2008 revenue forecast is now up to $13.3 billion, with expected net earned premium of $11.2 billion. That’s comfortably ahead of an August forecast where QBE projected gross written premium of $12.5 billion and net earned premium of $10.8 billion.
For 2009, based on an Australian dollar worth US70c and 40 pence, QBE expects another 25% uplift.
With 80% of gross written premium in foreign currency, the weaker Australian dollar has had a significant positive impact on premium income.
But Credit Suisse notes the currency swing has also absorbed some excess capital held in Australian dollars. Overall, though, the analyst rates QBE’s capital position as “very robust”.
So watch this space. QBE’s out hunting.
Rather than analyse the reason QBE has added another five insurance operations to the list, it is perhaps more fitting to consider who’s next?
Locally, the options are obvious. With Suncorp’s shares trading at long-term lows and IAG yet to bounce back to the form of yesteryear, the price of local rivals may never be better for QBE.
The company has bolstered its position by raising $2 billion in capital from investors in a share issue, comfortably above the $US695 million ($1.06 billion) it needs to spend upfront on the new acquisitions.
QBE has agreed to pay $US575 million ($875 million) for US home and property underwriting agency ZC Sterling Corporation, as well as two further underwriting agencies in the US. It will pick up a renewal rights portfolio in that country and add a fourth underwriting agency in Europe.
CEO Frank O’Halloran says the buyouts fit QBE strategy to build distribution channels for profitable niche products.
Analysts at Credit Suisse says it’s a positive move, given that all the operations will be earnings accretive in year one, fitting the QBE mould nicely. In the first full year, the five acquisitions are expected to produce gross written premium of almost $US525 million ($799 million) and net profit of $US175 million ($266 million).
But there’s the lingering question: what’s next?
With plenty of information about IAG stored away, it’s easy to speculate that QBE could have another shot at IAG. It probably wouldn’t even have to change its strategy. Or is it primarily interested in collecting more medium-sized strategic insurance operations in the US?
The company now ranks in the top 25 global insurers, and is enormously experienced at absorbing companies all along the distribution chain, so it could probably achieve both over the next year or so while some very good opportunities will be available. And IAG is, after all, just another opportunity.
And the latest capital-raising is likely to fuel speculation it may yet have another tilt at IAG, or even go after Suncorp. The Brisbane-based insurer was trading at $7.49 in Friday afternoon trading, against $20.80 on October 1 last year.
Credit Suisse has given the company a “neutral” rating, saying QBE has raised capital above what it needs to reload the balance sheet for more bolt-on acquisitions.
That fact is not lost on Credit Suisse analyst Arjan van Veen, who told insuranceNEWS.com.au on Friday “QBE would definitely be interested” should Suncorp first hive off its banking division.
In a briefing note to clients last week, Credit Suisse said a Suncorp takeover remains a possibility, though it also notes that QBE would probably need to raise more capital for an acquisition of that magnitude.
Suncorp has indicated it remains interested in disposing of its banking division on the right terms, but last month stopped talking to potential buyers after it failed to attract a suitable offer and the Federal Government moved to guarantee bank deposits.
But would Suncorp, with a bank on the property register, be a good fit for QBE? Possibly not, Mr van Veen says. “It’s most likely that QBE wouldn’t have the appetite for Suncorp.
“QBE is an unlikely bidder for the whole company,” he told insuranceNEWS.com.au. “It doesn’t have a banking licence for a start. If Suncorp gets a reasonable offer for the bank then the insurance side will come into play, but the bank no longer has the same liquidity issues.”
Mr van Veen says a stand-alone Suncorp insurance business is a different proposition.
“If someone offered one times net tangible assets, excluding goodwill, and the insurance division re-rated to [the level of its] peers, then Suncorp’s share price would be $11 rather than less than $8,” he said.
Mr van Veen says the bancassurer model is becoming less prevalent.
“The market doesn’t necessarily give companies credit for a more diversified business – it simply focuses on the worst-performing part,” he said.
So Suncorp looks a less likely option than IAG, but there are plenty of other reasons why IAG isn’t the attractive prosect it was a few months ago. “You can never rule [another IAG proposal] out, but the world has changed a bit since then, and the relative prices are not as attractive.”
QBE understandably focused on the positives as the insurer released updated revenue estimates last week. The 2008 revenue forecast is now up to $13.3 billion, with expected net earned premium of $11.2 billion. That’s comfortably ahead of an August forecast where QBE projected gross written premium of $12.5 billion and net earned premium of $10.8 billion.
For 2009, based on an Australian dollar worth US70c and 40 pence, QBE expects another 25% uplift.
With 80% of gross written premium in foreign currency, the weaker Australian dollar has had a significant positive impact on premium income.
But Credit Suisse notes the currency swing has also absorbed some excess capital held in Australian dollars. Overall, though, the analyst rates QBE’s capital position as “very robust”.
So watch this space. QBE’s out hunting.