QBE Insurance Group Ltd. (QBE) plans to raise about $750 million in a share placement and sell assets including part of its lenders’ mortgage insurance business in Australia after reporting an 18 percent drop in earnings.
The insurer, which earns about three quarters of its premiums outside Australia and New Zealand, will sell $600 million in shares to institutions and raise about $150 million through a share purchase plan, it said in a regulatory filing. QBE will also sell its U.S. agency business and seek partners for two Australian equivalents, it said. The proposals, along with a debt refinancing, will raise about $1.5 billion, chief executive officer John Neal said in a call with reporters.
“The measures by QBE aren’t a bad way to plug the hole in the balance sheet,” T S Lim, a Sydney-based analyst at Bell Potter Securities Ltd., said by phone. “You can’t have continued write-offs without asset sales and capital raisings.”
QBE posted its first annual loss in 12 years in 2013 after writedowns in its North American operations. The Sydney-based insurer’s share price has declined 7 percent this year, dragging its market value lower than competitors Suncorp (SUN) Group Ltd. and Insurance Australia Group Ltd.
Net income dropped to $392 million for the six months ended June 30 from $477 million a year earlier, in line with its forecast July 29, the insurer said today. Last month, QBE boosted its Latin America claims reserve by $170 million due in part to increased workers’ compensation claims in Argentina.
The company plans to sell shares in QBE Lenders Mortgage Insurance Ltd. through an initial public offering in 2015. The unit, acquired in 2008, had net tangible assets of about $1.2 billion as at June 30, QBE said. It’s the nation’s second-largest mortgage insurer by premium income behind Genworth Mortgage Insurance Australia Ltd. (GMA), according to data from Australian Prudential Regulation Authority.
Genworth raised A$583 million in May in an initial public offering. Its shares have risen 36 percent since listing.
QBE will finalize the sale of its Central and Eastern European operations as part of its sale of non-core assets, the insurer said.
“Companies such as Suncorp have demonstrated that selling non-core assets helps lift returns in the long run,” Lim said. “QBE has finally realized that they have too many operations around the globe.”
QBE made more than 135 acquisitions since 1982 and has operations across 43 countries, according to its website. Suncorp sold non-core assets such as real estate unit LJ Hooker and the RACQ insurance joint venture in the year to June 2010 and split its banking arm into core and non-core the previous year, according to a regulatory filing.
The capital raising and asset sales are “intended to significantly improve our capital strength and balance sheet resilience,” QBE’s CEO Neal said in the statement. The measures will support “more predictable and sustainable earnings for shareholders.”
The insurer will also repurchase and cancel $500 million of convertible subordinated debt using the proceeds of the capital raising, it said in today’s statement.
Following a review of its investment strategy, QBE will extend its risk-asset exposure to around 15 percent of its portfolio from about 2 percent as at Dec. 31. It will also extend the duration of its fixed-income assets to three years from about six months.
The insurer’s gross written premium fell 10 percent in the six months through June to $8.5 billion, mainly due to declines in Europe and North America. It expects full-year gross written premium of $16.6 billion to $17.0 billion.
QBE will pay a 15 Australian cent interim dividend per share representing 42 percent of the half year profit and down from 20 cents a year earlier. The shares are on a trading halt today.
Sydney-based competitor IAG (IAG) posted a 59 percent increase in net profit to A$1.23 billion for the year ended June 30 on higher investment income, the insurer said in a regulatory filing today. Suncorp reported a 49 percent increase in full-year net income last week.
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