By Danny John
GLOBAL insurer QBE has a major Australian acquisition fixed in its sights as it seeks to counter the dominance of rivals IAG, Suncorp and Allianz in the domestic market.
The group has spent nearly $1.25 billion on two sizeable and specialist local purchases since August last year mortgage insurer PMI and rural provider Elders, which was announced on Friday but those deals are unlikely to be the last here, QBE says.
Australian remains one of QBE’s main targets, says chief executive Frank O’Halloran.Credit: Rob Homer
Chief executive Frank OHalloran said that Australia remains one of the groups main targets alongside mainland Europe, Asia, Japan and Latin America.
All five regions have capacity for QBE to grow, said the long-serving Mr OHalloran.
The acquisitions of PMI and Elders, the latter of which extends QBEs reach into rural Australia, reflects the groups desire to avoid being marginalised in the domestic general insurance market, where it lags behind the three bigger players.
Nonetheless, Australia generated nearly a quarter of the groups global turnover last year of $13 billion and almost a third of its profits of $1.86 billion.
QBEs ambitions towards IAG, the owner of NRMA Insurance and commercial insurer CGU, are well known, after 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 OHalloran, the veteran of more than 100 acquisitions, said the groups latest buys were very much "bolt on" deals.
The aim was to maintain revenue growth from businesses that did not represent regulatory hurdles for example, competition issues that would prevent QBE from making a major purchase.
"We dont want to make it difficult to do a large acquisition," he said.
But he was adamant that QBE would not overpay and dilute shareholder returns, in a reference to his decision last May to walk away from the cash and shares merger plan put to IAG.
IAG rejected the approach, saying the offer worth as much as $4.58 a share grossly undervalued the insurer. Since then, IAG has undergone a major restructuring under recently appointed chief executive Mike Wilkins.
Its stock, however, continues to underperform the market and now stands at $3.67, up 60¢ from its March lows.
QBE has also been considered the likely buyer of Suncorps insurance business in any break-up of the group.
However, with a new chief executive, Patrick Snowball, due to start work at Suncorp next month, the prospect of any deal there is likely to focus more on a sale of its banking division than its insurance brands such as AAMI, Vero and GIO, which represent a better future for the Brisbane-based group.
Any large Australian acquistion for QBE would have to meet strict investment criteria, which Mr OHalloran said the group would breach "under no circumstances".
"Were going to be very, very patient about it," said Mr OHalloran of a possible domestic purchase. "We have never got to the stage of being desperate to do something. That is a recipe for disaster if you get that desperate."
QBE is due to provide a market update on its plans in just over a fortnight when it releases its half-year profit result.