Qbe Snaps Up A $1b Consolation Prize After Failing To Secure Iag
Sydney Morning Herald
Friday August 15, 2008
THE insurer QBE yesterday snapped up one of the country's major providers of home loan insurance to banks and other lenders.
The move is a bid by QBE to keep growing its revenue base following its failed $8.7 billion tilt at Insurance Australia Group earlier this year.QBE could pay as much as $1 billion to acquire PMI Australia and New Zealand, and its sister business in Hong Kong. About 80 per cent of the price will be paid in cash now and the remainder in three years' time as a performance-related payment. The purchase price is nine times PMI's current profits of $109 million and equivalent to PMI's net asset value.QBE said it expected the business would add to its earnings in the very first year.It will also bring in $217 million of annual gross written premiums - revenue on which the insurer is increasingly dependent to boost its worldwide spread of businesses. To that end, PMI will be a minor consolation for QBE after it failed to engage IAG in a scrip and cash merger that was rejected as too low by the owner of NRMA Insurance.PMI writes about 40 per cent of residential mortgage insurance in Australia, where it has been operating since the late 1960s.It has subsequently branched out to Hong Kong, where it is one of five authorised reinsurers to the region's Mortgage Corporation - which represents 85 per cent of the residential home loans insurance market.Nonetheless, PMI is quite a sensitive acquisition for QBE as similar insurers in the US have got into financial trouble because of their exposure to the subprime housing crisis. That has seen millions of home-owners default on their mortgages, exposing insurers to multiple claims. QBE said last night that there were "significant differences" between the Australian market and its North American counterpart. Almost all domestic mortgages here are far more fully secured and the risk of default is lower.QBE indicated that under a worst case scenario, whereby PMI was to face claims of $1 billion over a three-year period, it group would still have enough of its own insurance cover and could claw back sufficient funds from the deal's delayed $200 million payment to make up for any losses.
© 2008 Sydney Morning Herald