QBE chief Frank O’Halloran has something else to worry about. Analysts at the major investment firms want him to organise a capital-raising. Merrill Lynch says it should be at least $600 million if QBE is to take advantage of the higher rates that are being generated.

The Australian company’s losses from the September 11 terrorist attacks have left it in a difficult position, with leading analysts suggesting the company’s ability to capitalise on the hardening market may have been seriously impaired.

The call for fresh capital – $450 million to restore losses and $150 million to take full advantage of higher premiums from the rapidly hardening market – follows a declaration of faith by a leading regulator in the company’s actions.

ASIC Financial Services Regulation Director Ian Johnston told last week’s NIBA Convention that he was happy with the way QBE acted to protect the integrity of its shares after they fell from $10.21 to $3.28 after its exposures became known. “It was reasonable in the face of such a market over-reaction,” he said.

But now, with QBE’s share price still about 40% lower than it was at its peak – and its solvency ration about 35% – the analysts are saying a capital-raising is necessary for the company to stay competitive in the near future.

According to the Australian Financial Review, Deutsche Bank believes the capital-raising will be necessary for the company to “share in the industry’s upside”. In a report to clients, JP Morgan also said the company needs extra capital to grow, especially as its reinsurance arrangements could put QBE under additional pressure.

If it didn’t raise additional capital, QBE “would need to restrain [its] growth profile until the group’s retained earnings restore its solvency position, which could take up to 18 months”.