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QBE TO ACQUIRE US SPECIALITY BUSINESS
Friday 19 November 2010
Author: Russell Group
 

The announcement by Australian insurance group QBE that it has agreed to acquire the US insurance operations of Renaissance Re (Ren Re), have been met by a cautious approach from analysts.

Ren Re’s US operations include a US crop and small specialist program insurance business with QBE stating the purchase price is expected to be around $275 million, with net tangible assets acquired of approximately $215 million.

Frank O’Halloran, QBE’s Chief Executive Officer, said “The acquisition is in line with our strategy of acquiring specialist businesses to further enhance our product diversification and distribution. The acquisition is complementary to the NAU crop insurance business announced in June this year. The acquisition is expected to be earnings per share accretive in year one, subject to the usual caveats.”

The deal will see QBE acquire Ren Re subsidiary Stonington Insurance Co.,Lantana Insurance Ltd., and Stonington Lloyd's Insurance and will be funded from existing resources and subject to the necessary regulatory approvals is expected to be completed in March next year.

QBE said the business acquired is expected to generate over $350 million of gross written premium in 2011 and net profit after tax of over $30 million.

However, on the news rating firm Standard & Poor’s said it placed its 'A+'counterparty credit and financial strength ratings on Glencoe Insurance Ltd.,Stonington Insurance Co., Lantana Insurance Ltd., and Stonington LloydsInsurance Co., which are subsidiaries of Renaissance Re Holdings Ltd. onCreditWatch with negative implications.

It said: “The rating action follows today's announcement that Renaissance Re has entered into a definitive agreement with QBE Holdings Inc. to sell its U.S. property/casualty business underwritten through managing general agents, its crop insurance business underwritten through Agro National Inc., and its commercial property insurance operation for year-end 2010 book value.”

"The CreditWatch placement reflects our view that we could either affirm or lower the ratings on Glencoe Insurance Ltd., Stonington Insurance Co.,Lantana Insurance Ltd., and Stonington Lloyd's Insurance Co.," said Standard & Poor's credit analyst Taoufik Gharib. "The ratings on Renaissance Re Holdings Ltd. and its other subsidiaries are not affected by this transaction."

S&P said it was likely to resolve the CreditWatch status of the ratings onStonington Insurance, Lantana Insurance, and Stonington Lloyd's Insurance upon the closing of the transaction.

“We will assess these three companies' importance to QBE Holdings,” it added. “If we consider them to be strategically important subsidiaries and believe their stand-alone credit characteristics plus QBE Holdings' implicit support are below that of the current 'A+' rating, we could lower the ratings by one notch. Conversely, if we consider these three entities core subsidiaries ofQBE Holdings based on explicit support, we could affirm the ratings.”