QBE to raise A$1.3bn to cover virus-linked uncertainty and prepare for opportunities

QBE plans to raise A$1.3bn to protect itself against expected reductions in revenues in various countries in which it operates, as they struggle to cope with the forecast global recession caused by the coronavirus. The group said the new funds would lift its regulatory capital to the top of its target range in view of the “economic and investment market uncertainty”. The insurer also published a positive review of its first-quarter trading, revealing “strong” upwards momentum in pricing and gross written premiums across its book with rates up 7.6% in the period and premiums up 5% on a reported basis. QBE said the virus will have only a “modest” impact on its gross written premium levels in 2020 and it does not expect big claims from its business interruption book, because they would require a physical damage trigger or had been specifically excluded from the policies. Its exposure to the travel business will be limited by the sale of its Australian travel insurance business in 2019. The group also confirmed that it does not write any “material” event cancellation and contingency business. Overall, QBE said that following the capital boost it will be well positioned to capitalise on a potential insurance market “dislocation and flight to quality” caused by the virus. It added that it is “well positioned for subsequent organic growth opportunities during the market recovery”. The bid for fresh funding comes only two weeks after the insurer withdrew its previously published targets for 2020, “in light of the unprecedented Covid-19 pandemic and uncertain economic and investment market outlook”. A week later, the Australian Prudential Regulatory Authority (APRA) warned that the insurers and banks should “seriously consider” suspending dividends until the fallout from Covid-19 recedes. On 8 April, however, QBE announced that its board had decided that it was appropriate to pay its dividend as planned. “QBE Limited’s board has carefully considered APRA’s new guidelines regarding the payment of dividends by financial institutions in the currently volatile Covid-19 economic environment. Following due consideration, the board is satisfied that it is appropriate to pay the group’s 2019 final dividend of 27 Australian cents per share on Thursday, 9 April 2020, as scheduled,” it explained. APRA may be interested to hear why the company decided to withdraw its outlook, proceed with the dividend and then launch its capital raising all within a matter of weeks. The market clearly has confidence in QBE’s ability to ride out the current crisis and take advantage of any upside when the recovery starts. A$1.2bn of the capital has been underwritten in the form of an institutional placement, so is secured. The next tranche of A$145.5m will be raised via new shares that represent 11.1% of QBEs existing shares. The group said that, apart from raising the regulatory capital level to help cope with the economic and investment market uncertainty, the move would “assist in capitalising on growth opportunities, particularly in the international division”. In a presentation to investors, QBE also said it is taking action to “materially” de-risk its investment book by drawing back from equities, and emerging market and high yield debt. It is also buying more reinsurance for its US crop business and more catastrophe reinsurance to reduce its North American peak peril retention from $275m down to $150m. It will also carry out a portfolio transfer of about $300m of North American excess and surplus lines reserves.

QBE to raise A$1.3bn to cover virus-linked uncertainty and prepare for opportunities

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