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QBE eyes bolt-ons – and exchange rate

QBE CEO Frank O’Halloran says the group is on track to achieve 20% profit growth in 2007, but currency fluctuations could affect earnings.

Mr O’Halloran also says the company will boost future earnings through continued acquisitions globally. But he ruled out large-scale purchases in favour of smaller “bolt-ons”.

With more than 50% of its business overseas, QBE has invested heavily in currency hedging to negate movements in the Australian dollar. Mr O’Halloran says a 1% shift in the dollar could add or subtract $90 million at the bottom line.

“We are talking about big numbers here,” he said at the company’s annual general meeting last week.

QBE’s first-quarter payout losses are running behind the previous corresponding period, but big foreign acquisitions late in 2006 and early in 2007 are likely to boost gross written premium by 30%, to $13.5 billion.

In January QBE entered an agreement to purchase Axa’s Winterthur operations in the US for $1.16 billion after acquiring Praetorian Financial Group for $800 million, which doubled its US premiums book.

Those two purchases are forecast to add $380 million to profit after tax in their first full year as QBE subsidiaries, Mr O’Halloran says.

QBE is also on track for a full-year insurance margin between 17.5% and 18.5%.

In March, QBE reported a 36% rise in full-year net profit to $1.48 billion.