QBE Chairman John Cloney says the group will meet its full-year profit targets – 10% higher than 2003 – and increase net premium income by 12.5%. Speaking at the international group’s annual general meeting in Sydney, he also confirmed what analysts had been wanting to hear: QBE is definitely on the local acquisition trail.

Intense speculation within the industry about who the acquisition target/s might be has been going on for months, but most analysts seem to agree that the most immediate local “target” will be QBE Mercantile Mutual.

In interviews in Sydney last week after the AGM, CEO Frank O’Halloran made it plain that gossip suggesting he has been talking to top executives at Zurich and Allianz in Europe is just that.

Mr O’Halloran made it clear in an interview with the Australian Financial Review that the local operations of Allianz and Zurich aren’t on QBE’s shopping list. He said they’re not for sale, anyway – which suggests that he has at least asked.

So that leaves QBE Mercantile Mutual, the unusual 50/50 joint venture formed in 1999 by Mr O’Halloran and ING Asia/Pacific CEO Phillip Shirriff to give their intermediated commercial businesses some market scale. Mercantile Mutual is understood to no longer fit into ING’s business model, and a sale of the remaining 50% to QBE would give Mr O’Halloran the boost he wants in the local market.

QBE Mercantile Mutual pulled in $1.5 billion in gross written premium last year, making it a significant player in the market in its own right. QBE veteran Terry Ibbotson runs a tightly managed operation at QBE Mercantile Mutual that would probably meet another of Mr O’Halloran’s stated criteria: that a local acquisition be easily “bolted on” to QBE’s existing Australian business unit.

Mr O’Halloran is certainly no stranger to takeovers, but QBE hasn’t made a major acquisition locally since acquiring HIH’s general insurance business in 2001.

So when will QBE jump? Mr O’Halloran is famous for his dead-bat approach to such questions. He told journalists last week: “Only time will tell.”