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04 April 2012

WSJ: QBE buys renewal rights of Brit Insurance’s regional operations

QBE Insurance Group has bought the renewal rights of Brit Insurance's £350 million (US$556 million) of regional premium income, which could give Australia's largest insurer an estimated 5 per cent of the UK market share from next year.

Almost 130 staff from Brit's underwriting team will transfer to QBE as part of the merger, which will create an entity with an ongoing gross premium of more than £500 million spread across 10 UK locations.

Buying the renewal rights from an insurer is a means of taking over clients when they renew their insurance policies without assuming any liabilities or capital from the acquisition.

QBE’s incoming chief executive, John Neal, forecast at the insurer’s annual general meeting on Wednesday the company’s gross written premium will rise to US$800 million by next year, equivalent to around 5 per cent of the UK market.

In a note to clients, Goldman Sachs analyst, Ryan Fisher, said that while the renewal rights relate to more than £350 million of premium income — which equates to between 2.5 per cent and 3.0 per cent of the broker’s current gross written premium forecast for the QBE group as a whole — he would be surprised if the increment to QBE’s premium line ends up being as large as that range, because QBE is likely to be very selective in re-underwriting and renewing the business.

"In fact, given the tough state of the UK regional market, and the likely profitability of Brit’s book today, QBE will need to be very selective if it is to avoid diluting the group’s current insurance margin”, Mr Fisher said.

QBE has already made three other acquisitions so far this year, including the general insurance businesses of HSBC Argentina Holdings and Hang Seng Bank, both subsidiaries of HSBC Holdings, for US$420 million, and Puerto Rican underwriting business Optima Insurance Group in a deal completed in February.

Full article

© Wall Street Journal

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