QBE to raise $2 billion in share sale

(AAP) - QBE Insurance Group Ltd has agreed to buy four companies for $US695 million ($A1.2 billion) as Australia's biggest property and casualty insurer takes advantage of a slump in asset values due to falling equity markets.

QBE announced on Wednesday it would raise a maximum $2.1 billion through a share
sale to pay for the takeovers, which include US underwriting agency ZC Sterling
Corporation (ZCS) for $US575 million ($A884 million), and boost its balance sheet.
The insurer, which earns about 80 per cent of its revenue overseas, has also agreed
to buy two further underwriting agencies in the US and one in Europe, as well as a
renewal rights portfolio.
"This is a continuation of their opportunistic approach to bolt-on acquisitions,"
Perpetual head of Australian equities John Sevior said.
"At face value it looks cheap," he said of the price QBE paid. Perpetual manages
about $15 billion and own over 10 million QBE shares.
QBE also said it had benefited from a weaker Australian dollar, enabling the company
to upgrade its revenue forecasts.
Gross written premium for calendar 2008 is now expected to grow about seven per
cent, and to jump 24 per cent in calendar 2009.
Shares in the insurer have been placed in trading halt, while the Sydney-based
company conducts the share sale, which is expected to be price at around $20.50 a
share.
Its stock closed at $23.00 on Tuesday and have declined 31 per cent this year. That
compares to the 48 per cent drop in the S&P/ASX 200 Financials index.
QBE chief executive Frank O'Halloran, who has led the company since 1998 and worked
there for over 30 years, has successfully pursued a strategy of growing the company
through buying small companies. QBE shares have almost tripled in value in the time
he's been CEO.
"The acquisition of the four underwriting agencies and the renewal rights portfolio
is consistent with our strategy to build our distribution channels for profitable
niche products," Mr Halloran said in a statement.
The latest takeovers will boost QBE's earnings per share from the first year, he said.
ZCS specialises in and has sizeable market shares in property insurance and
voluntary homeowners' insurance, and is not involved with lenders' mortgage
insurance.
The five acquisitions will add a gross written premium of close to $US525 million
($A807 million) and profit after tax of around $US175 million ($A269 million),
according to the company.
QBE will raise $2 billion through a fully underwritten share placement to
institutional investors and up to a further $100 million in a non-underwritten share
sale to retail investors.
As part of its capital management, QBE also intends to buy back up to $1.25 billion
in face value of its tier one perpetual securities at a discount in exchange for
five year senior notes.
"The capital raising and the other capital management initiatives will assist in
funding the acquisitions and our 2009 growth as well as provide further balance
sheet strength and flexibility for other opportunities," Mr O'Halloran said.
QBE, the largest managing agent for Lloyds of London, the world's leading specialist
insurance market, said the decline in the Australian dollar would boost the value of
premiums written in other currencies, especially the US dollar and British pound.
QBE expects gross written premium for calendar 2008 to rise to $13.3 billion, from
$12.41 billion in 2007. The company had previously forecast the figure to rise to
$12.5 billion.
For 2009, gross written premium is expected jump to $16.5 billion, if the Australian
dollar holds around 70 US cents and 40 UK pence.