Investors endorse QBE shake-up

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.

By InvestSMART · 1 Mar 2012

By InvestSMART ·
1 Mar 2012

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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…

How did QBE share price react to the management shake-up and Frank O'Halloran's planned retirement?

QBE shares tracked higher after the announcement, coming off a trading halt and finishing 1.3% up at $11.65 as investors reacted positively to the looming management change and CEO Frank O'Halloran's plan to retire.

What did QBE's $450 million capital raising involve and why was it done?

QBE placed 42 million ordinary shares with institutions at $10.70 each (about a 7% discount to the pre-halt price) as part of a $450 million capital raising aimed at replacing tier-2 convertible debt while regulators take a tougher view on capital.

Was the institutional placement for QBE well supported by investors?

Yes. QBE said strong demand from domestic and offshore institutional shareholders meant the placement was well over-subscribed, indicating solid institutional support for the capital raising.

Will retail investors be able to participate in QBE's capital raising?

Yes. After the institutional placement, QBE plans to push ahead with a $150 million retail raising to give individual investors a chance to participate.

Who will replace Frank O'Halloran as QBE chief executive and how has the transition been managed?

QBE this week named insider John Neal to take charge from Frank O'Halloran. The appointment capped nearly two years of careful preparation, with an extended handover and Mr O'Halloran transitioning to the board to smooth the change.

How has QBE's recent financial performance affected the company?

QBE's full-year profit fell 45% to US$704 million, and the insurer was barely profitable in the second half after being hit by a string of natural disasters — a result that overshadowed the management announcement.

What did analysts say about John Neal's appointment as QBE CEO?

Goldman Sachs analyst Ryan Fisher said the market shouldn't have been surprised by John Neal's selection, and any fears of a large-scale 'clearing of the decks' (often involving write-downs) were likely eased by the extended handover and O'Halloran's move to the board.

Why is QBE replacing tier-2 convertible debt and what does that mean for investors?

QBE's placement was intended to replace its tier-2 convertible debt in the context of regulators worldwide taking a tougher stance on capital. For investors, this signals the company is strengthening its capital position to meet regulatory expectations.