In the early 1970s, a pair of American economists devised what would later be dubbed the Midas Formula – a method of accurately pricing stock options that had eluded economists for decades.

This neat mathematical trick of Fischer Black and Myron Scholes led to a boom in options trading that, at the time, was hailed as the end of the bear/bull cycle.

Call it whatever you will – Frank’s Formula, O’Halloran’s Principle, the QBE Theorem – the legendary QBE CEO has generated his own method for calculating the value of a potential acquisition.

Every acquisition under Mr O’Halloran’s 14-year leadership has been subject to the same stringent criteria, producing one of the most remarkably successful periods of continuous acquisition in business history.

Where IAG has consistently – and often spectacularly – failed, QBE has rarely put a foot wrong. It’s a little known fact that since 2003, QBE’s total amount of goodwill has never gone down. Correction; it did drop in 2009 but from currency fluctuations, not from the value of the acquired asset.

Since 2003, after which the insurer stopped amortising goodwill and instead subjected it to an annual impairment testing, QBE’s goodwill has risen from $356 million to $US4.66 billion ($4.38 billion), a remarkable rise. Since 2008, QBE has acquired 27 businesses, and more than 75 companies in the past 10 years.

While QBE’s hunger for new territory makes it difficult to assess the amount of goodwill changing within individual companies, most of the company’s losses have stemmed from weather losses, rather than the kind of systemic market collapses that have bedevilled IAG’s UK operations.

QBE’s latest foray into South America, following the purchase of HSBC Argentina’s insurance assets, will be one of Mr O’Halloran’s final acquisitions – as chief executive at least.

While John Neal takes over as chief executive in August, we can expect Mr O’Halloran to run every acquisition through his magic formula with the same scrutiny once he rejoins QBE as a non-executive director early next year.

Ultimately it will be Mr Neal’s course to run, and already the current Global Underwriting CEO has signalled his intention to scale back QBE’s aggressiveness to focus on more “bolt-on” acquisitions.

This could mean further consolidation in the Australian market, particularly in the underwriting agency space, which looks set to boom over the next few years.

But it’s QBE’s past acquisitions that have raised many international investors’ interest, with some wondering if QBE could announce goodwill writedowns in the coming months as Mr Neal and his team come to grips with the business.

It’s common for incoming CEOs to reveal updates to the business hitherto unannounced by their predecessor, although Mr Neal’s familiarity with the group and Mr O’Halloran’s close ties to it make this unlikely.

But the Australian Investments and Securities Commission (ASIC) crackdown on disclosure might just change this view on what to tell investors.

Last month ASIC fined developer Leighton Holdings $300,000 for not complying with continuous disclosure of the Corporations Act and the Australian Securities Exchange listing rules.

ASIC Chairman Greg Medcraft says the regulator is looking at enforcing the overall integrity of Australia’s listed markets.

“Compliance with continuous disclosure provisions goes to the heart of ASIC’s priority of promoting fair and efficient markets,” he said.

“All listed companies should have procedures in place to ensure that they comply with their continuous disclosure requirements.”

But should downgrades, and re-rating, of goodwill be disclosed to the market? And what impact does it have on the value of a listed company?

Some analysts have correctly pointed out that goodwill – the amount paid over and above net assets for an acquired business – is largely unimportant.

While a writedown in goodwill would seem by some to raise questions around QBE, it in fact has very few fundamental implications to the business.

“Most of the market doesn’t even believe the goodwill intangible, anyway,” one analyst told insuranceNEWS.com.au.

What’s more important is whether Mr Neal will apply Frank’s Formula to QBE’s future acquisitions.  

The Scholes Black Formula is still used by traders today, despite its role in the 1987 stockmarket crash and the collapse of long term capital management.

Only time with tell if Frank’s Formula will continue to spin gold in the hands of a new chief executive.