Investors rush QBE after executive handover

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 the long-serving chief executive Frank O'Halloran.

By InvestSMART · 1 Mar 2012

By InvestSMART ·
1 Mar 2012

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Shares in QBE came off a trading halt, finishing 1.3 per cent higher at $11.65. The move marked the first time the shares changed hands since Mr O'Halloran flagged his retirement.

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 oversubscribed, QBE said yesterday. The raising was to replace QBE's tier-two convertible debt just as regulators here and around the world are taking a tougher view on capital.

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

This week it named insider John Neal to take charge from Mr O'Halloran. The appointment capped nearly two years of painstaking preparations for the retirement of the long-serving chief executive who has overseen more than 125 acquisitions in expanding QBE offshore.

However, the announcement was overshadowed by a 45 per cent drop in QBE's full-year profit to $US704 million ($654 million). The result revealed QBE was barely profitable in the second half after being hit by a string of natural disasters, which sent claims soaring.

Goldman Sachs analyst Ryan Fisher said the market should not have been surprised by the choice of Mr Neal. Concerns about a clearing of the decks, which often involves writedowns, are likely to have been dampened by the extended handover period and Mr O'Halloran's board transition, Mr Fisher said.

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Frequently Asked Questions about this Article…

What happened to QBE share price after the executive handover news?

QBE shares rose after the management shake-up: they came off a trading halt and finished 1.3% higher at $11.65, the first time the stock changed hands since CEO Frank O'Halloran flagged his retirement — a sign investors gave a warm endorsement to the handover.

Why did QBE place 42 million shares with institutional investors?

QBE placed 42 million ordinary shares with institutions at $10.70 each (about a 7% discount to the $11.50 pre-halt price) to replace tier-two convertible debt as regulators here and overseas take a tougher view on capital.

Is QBE doing a retail raising and how much is it for?

Yes — following the institutional placement, QBE will push ahead a $150 million retail raising to further bolster its capital position.

Who is taking over as QBE CEO and how was the transition handled?

Insider John Neal was named to take charge from long-serving CEO Frank O'Halloran. The appointment capped nearly two years of careful preparation for the retirement and included an extended handover and board transition to reassure investors.

How did QBE’s recent profit results affect investor sentiment?

QBE reported a 45% drop in full-year profit to US$704 million (A$654 million) and was barely profitable in the second half after a run of natural disasters pushed claims higher — but investors still responded positively to the management changes and capital-raising steps.

Was there strong demand for QBE’s institutional placement?

Yes — QBE said the institutional placement was well oversubscribed thanks to strong demand from both domestic and offshore institutional shareholders.

How does replacing tier-two convertible debt affect QBE’s capital position?

By replacing tier-two convertible debt with equity through the placement and the retail raising, QBE is shoring up capital to meet tougher regulatory expectations and reduce reliance on hybrid debt instruments.

Should investors worry about writedowns or a 'clearing of the decks' after the CEO change?

Goldman Sachs analyst Ryan Fisher said the market shouldn’t have been surprised by Neal’s appointment, and the extended handover and board transition are likely to have dampened concerns about a sudden clearing of the decks or surprise writedowns.