Bank of America has signed a 10-year distribution deal with QBE for its Balboa Insurance business.

Under the deal QBE will also take over the outstanding claims and unearned premiums in the portfolio.

A QBE spokesman confirmed the $US1.4 billion ($1.38 billion) of liabilities will be covered by both paid and unearned premiums.

According to Balboa’s 2009 accounts, gross written premium for the year was $US1.9 billion ($1.87 billion) which after liabilities gave an after-tax profit of $US443 million ($437 million).

QBE estimates future gross earned annual premium will be about $US1.3 billon ($1.28 billion) while net earned premium will be $US1.5 billion ($1.48 billion). The US insurer has total assets of $US3.2 billion ($3.16 billion).

The Australian insurer will have to make a $US700 million ($691 million) upfront payment to the Bank of America for the distribution rights. This will be funded from new short-term bank loans.

Bank of America will have the right to not renew the distribution agreement at the end of 10 years, the spokesman told insuranceNEWS.com.au. If that happens the portfolio will go into run-off.

QBE Group CEO Frank O’Halloran said in a statement the distribution agreement will provide the insurer with a specialist personal lines portfolio that complements the Sterling National business acquired in 2008.

The company’s US business will now be made up of five major insurance segments: lender placed and voluntary homeowners; contents and motor; specialty; crop; and regional agency and broker.

“QBE’s strategy in the US of specialisation for the majority of business has enabled it to outperform the market in recent years, with 2010 producing a preliminary combined operating ratio of 89.7% and a 19% increase in underwriting profit of $US309 million ($303 million),” Mr O’Halloran said.

“We now have a sizable market share in the lender-placed homeowners, speciality and crop sectors.”

Balboa is licensed in 50 US states and provides lender-placed insurance, as well as home and car insurance