QBE still on acquisition trail

Sydney Morning Herald

Monday August 3, 2009

Danny John

THE global insurer QBE has Australia firmly in its sights for a major acquisition to counter the dominance of IAG, Suncorp and Allianz in the domestic market.While QBE has spent nearly $1.25 billion on two sizeable and specialist local purchases since last August �� the mortgage insurer PMI and the rural provider Elders, which was announced on Friday �� those deals are unlikely to be the last here, it says.Its chief executive, Frank O'Halloran, told BusinessDay that Australia was one of QBE's main targets alongside Europe, Asia, Japan and Latin America.All five regions have capacity for QBE to grow following its huge spending spree over the past two years in North America, which had reached its limit for expansion, Mr O'Halloran said.The acquisitions of PMI and Elders, the latter extending QBE's reach into rural Australia, indicate its desire to avoid being marginalised in the domestic general insurance market, where it lags behind the three bigger players.Even so, Australia generated nearly a quarter of QBE's global turnover last year of $13 billion and almost a third of its profits of $1.86 billion.QBE's ambitions towards IAG, the owner of NRMA Insurance and the commercial insurer CGU, are well known. An $8 billion-plus ��cat and mouse�� takeover approach was firmly rejected by its competitor last year.While reluctant to talk about its wider domestic targets following the deal to buy the Elders business for $270 million, Mr O'Halloran said the group's latest buys were very much ��bolt on�� deals.The aim was to continue growing its gross written premium �� revenue �� from businesses which would not prevent QBE from making a major purchase in terms of regulatory hurdles such as competition restrictions. ��We don't want to make it difficult to do a large acquisition.��He was adamant QBE would not overpay and dilute shareholder returns, in a reference to his decision in May to walk away from the cash-and-shares merger plan put to IAG.IAG rejected the offer, worth as much as $4.58 a share, arguing that it grossly undervalued the insurer. Since then IAG has had a big restructuring under its recently appointed chief executive, Mike Wilkins. Its stock, though, continues to underperform the market and now stands at $3.67, up 60c from its March lows.QBE has also been considered the likely buyer of Suncorp's insurance business in any break-up of the troubled bancassurance group. However, with a new chief executive, Patrick Snowball, due to start at Suncorp next month, the prospect of any deal there is likely to focus on a sale of its banking division rather than its insurance brands such as AAMI, Vero and GIO, which represent a better future for it. But anylarge Australian acquisition would have to meet QBE's strict investment criteria, which Mr O'Halloran said the group would breach ��under no circumstances��.��We're going to be very, very patient about it,�� he said of a possible domestic purchase. ��We have never got to the stage of being desperate to do something."QBE is due to update the market on its future expansion plans in just over a fortnight, when it publishes its half-year profit result.

© 2009 Sydney Morning Herald

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