QBE boss ready for a new game

It wasn't so much the early hint that QBE may have turned a corner following nearly 18 months of troubled returns. Rather, O'Halloran's Sydney Swans had side-stepped a serious hurdle.

"Ballantyne won't be playing," he said of the plucky Fremantle defender who has a freakish habit of infuriating even the best oppositions. "He could have been a problem," he told Weekend Business.

Hayden Ballantyne won't take to the SCG this afternoon, sitting out a two-week suspension, but QBE's boss is hoping to head along, and, as always, the details of the company's top 10 insurance risks will be close at hand.

Until last year, QBE seemingly defied gravity, avoiding the bad luck that often haunts Australian companies when they expand offshore through acquisition. This helped QBE become a market darling of institutional investors, although it was the same investors that often struggled to understand the company.

QBE's complexity also meant retail investors steered a wide berth. About 80 per cent of its investor base was made up of big institutional investors, far higher than most blue-chip companies.

Then QBE's acquisition-led spree caught up. It was hit with a record year of payouts on exposures to Australia's floods, cyclones in the US and Thailand's floods. Worryingly it was starting to face scrutiny from US regulators for a business it only recently bought - Balboa which specialised in the lucrative market of taking on insurance risk of repossessed homes.

All this saw its shares come thudding back to earth trading at their lowest level in almost a decade.

From breaking-out during the 1990s from a second-tier Australian player, QBE had clearly started to outgrow its management and board structure before O'Halloran flagged his retirement last month.

The company that is now ranked as one of the world's top 20 insurers, and one of the biggest players in the powerful Lloyds insurance market, arguably has as much systemic influence on the global financial system as one of Australia's big four banks even though it generates only a fraction of their revenue.

Given so many of its global linkages this means it occupies a significant amount of regulator attention, disproportionate to its market clout in Australia.

This status of industry giant was at odds with the folksy charm and culture of QBE that has grown up around O'Halloran in his 14 years as chief executive.

O'Halloran's shadow loomed large in every management decision. And with acquisitions under his tenure pushing a blistering 130, he also played an active part in each deal. O'Halloran is known to often personally oversee due diligence on the ground, be the potential target located in Poland or Puerto Rico.

But the ferocious acquisition count means QBE now faces its own growing pains. Much of its near $30 billion investment portfolio is tied up in European and US bonds, to match the exposure of the market it operates in. However the long-term outlook for interest rates in these markets is poor, meaning it has to work profitability from its insurance underwriting portfolio harder.

QBE still operates with a tiny group head office in a forgotten slice of Sydney's Pitt Street. It was only this year the company appointed an investor relations executive, a former Macquarie Group insurance analyst, Tony Jackson, to deal with complex queries from fund managers and to improve QBE's communications with the market.

Some analysts point out the better "visibility" surrounding the company's finances is already starting to win over investors even in the face of a tough insurance environment. But some of the company's old world corporate habits remain.

This includes the unusual move of appointing O'Halloran to the QBE board within six months of his retirement in August.

This goes against the grain of sound corporate governance, but the decision has failed to draw the ire of QBE's major shareholders. At the same time the QBE chairman, Belinda Hutchinson, insists it was a board decision, aimed at retaining O'Halloran's knowledge and experience inside the sprawling QBE.

Still, the incoming chief executive, Briton John Neal, this week gave investors the first real hint into what to expect under his tenure. While QBE's overriding strategy will remain the same, he cites improved disclosure and a commitment to jettison businesses that fail to meet profitability targets.

O'Halloran has done well out of QBE, even with the twists in the share price over recent years. This week QBE issued him with $1.5 million worth of shares to add to his $20 million-plus stake in the company. The shares were issued partly under the dividend reinvestment program of his existing holding as well as the conversion of shares from a long-term bonus awarded three years ago.

Known for working punishing hours and a gruelling global schedule, the 65-year-old O'Halloran has said he intends to switch his focus to charity after he steps down in August. There'll also be more time for the Swans. "I love this company - I put my heart and soul into it. I'm sure whatever I do next I'll do the same," he says.