Investors endorse QBE shake-up

Shares in insurer tracked higher as investors warmly accept management change.

By InvestSMART · 1 Mar 2012

By InvestSMART ·
1 Mar 2012

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Shares in insurer tracked higher as investors warmly accept management change.

SHARES in QBE Insurance tracked higher as investors issued a warm endorsement of the looming management shake-up at the insurer, including the planned retirement of long-serving chief executive Frank O'Halloran.

The shares came off a trading halt, finishing 1.3 per cent higher at $11.65. The move marked the market's first response to the announcement of the 65-year-old Mr O'Halloran's plans to retire. At the same time, institutional investors were rushing QBE's $450 million capital-raising.

QBE placed 42 million ordinary shares to institutions early yesterday at a price of $10.70 each. This represented a 7 per cent discount to the $11.50 a share before QBE entered a trading halt on Tuesday.

Strong demand from domestic and offshore institutional shareholders ensured the placement was well over-subscribed, QBE said. The raising was aimed at replacing QBE's tier-2 convertible debt just as regulators here and around the world take a tougher view on capital.

QBE will now push ahead with a $150 million raising from retail investors.

QBE this week named insider John Neal to take charge from Mr O'Halloran. The appointment capped off nearly two years of painstaking preparations for the retirement of Mr O'Halloran.

That announcement was overshadowed by a 45 per cent drop in QBE's full-year profit to $US704 million. The result revealed QBE was barely profitable in the second half after being hit by a string of natural disasters last year.

Goldman Sachs analyst Ryan Fisher said the market should not have been surprised by the choice of Mr Neal as the next chief executive. Mr Fisher noted that any concerns about a large-scale ''clearing of the decks", which often involved write-downs, were likely to have been dampened by the extended handover period and Mr O'Halloran's transition to the board.

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Frequently Asked Questions about this Article…

What happened to QBE shares after the management shake-up and retirement announcement?

QBE shares tracked higher after the announcement, coming off a trading halt and finishing 1.3% up at $11.65 as investors warmed to the planned management changes and CEO Frank O'Halloran's retirement.

Why did investors endorse QBE's management change and CEO transition?

Investors reacted positively because QBE named insider John Neal as the successor after nearly two years of careful handover planning. The extended transition and Mr O'Halloran's move to the board helped dampen concerns about a disruptive 'clearing of the decks.'

Who is replacing Frank O'Halloran as QBE CEO and what is his background?

QBE named insider John Neal to take charge as the next chief executive. The appointment capped off a long, deliberate preparation for Mr O'Halloran's retirement.

How did QBE structure its recent capital raising and what were the prices?

QBE placed 42 million ordinary shares to institutional investors at $10.70 each (about $450 million) — a 7% discount to the $11.50 share price before the trading halt — and will push ahead with a further $150 million retail raising.

Was there strong demand for QBE's capital raising from institutional investors?

Yes. QBE said the institutional placement was well oversubscribed, with strong demand from both domestic and offshore institutional shareholders.

Why is QBE replacing its tier-2 convertible debt through a share raising?

The share raising was aimed at replacing QBE's tier-2 convertible debt as regulators domestically and internationally are taking a tougher view on capital, prompting insurers to shore up equity capital.

How did QBE's recent profit performance affect investor sentiment?

QBE reported a 45% drop in full-year profit to US$704 million and was barely profitable in the second half after being hit by a string of natural disasters. Despite that profit fall, investors endorsed the management changes and capital plan.

What did analysts say about QBE's CEO appointment and the prospects for change at the company?

Goldman Sachs analyst Ryan Fisher said the market should not have been surprised by John Neal's appointment and that fears of a large-scale management 'clear-out' — which often brings write-downs — were likely eased by the extended handover and O'Halloran's transition to the board.