When he took over from Frank O'Halloran as chief executive at QBE in August last year, John Neal's mission was to unlock latent economies of scale that had been created by more than 120 acquisitions during his predecessor's 14-year stint. The progress report he gave on Tuesday shows he is well on the way to doing it.
Savings from a methodical restructuring that pulls much of QBE's administrative work world-wide into a giant processing centre located in the Philippines capital of Manila are on track to hit his target of at least $250 million a year, and should beat the mark comfortably.
The head of QBE's Australian businesses, Colin Fagen, says for example that he is now extremely confident that his businesses will lock in more savings than expected.
Redundancy costs are lower than anticipated in Australia, for one thing: 521 staff have been affected, but 364 of them are being relocated within QBE, and there have been only 39 payouts. Fagen also says that the new Manila office is delivering significantly better productivity gains than expected.
Neal has designed the restructuring to deliver savings quickly by putting capital-intensive information technology changes at the back of the process instead of at the front as often happens, and he says natural disasters are not bearing down on the group's reinsurance business.
He has formally maintained QBE's profit guidance but there's a growth asterisk next to it after the briefing, and investors reacted on Tuesday by pushing QBE's shares up by 4.2 per cent to $15.94, adding almost $800 million to the market value of the group.
The shares fell from $28.05 in October 2008 to $10.10 in December last year, about 11 weeks after Neal took over. They are up 58 per cent since then, and have risen by 25 per cent since the end of February when he announced the restructuring.
O'Halloran turned QBE into a genuine global force in the general insurance industry, but incomplete integration of businesses that he acquired became an increasingly pressing issue from 2008 onwards as the global crisis and the economic downturn it spawned made cost controls much more critical in profit growth plans.
There is an element of catch-up in Neal's restructuring, which centres on creating common administrative processes for the insurers the group owns around the world, and sending the homogenised workload to Manila. The group's big overseas competitors, including Travelers, Ace, Zurich and AXA have had centralised offshore processing for a decade or more.
O'Halloran completed so many acquisitions that there is significant latent power inside the Australian-headquartered group, and Neal argues that in some respects he is going to get last-mover advantage.
Having reviewed the options, he is for example building his Manila processing centre as what is effectively another wholly owned division of the group, instead of contracting the processing work out to an external company, or joint-venturing the project.
QBE is taking on business development risk as a result, but it has greater management control from day one, and Neal has put in place solid processes for the switch to Manila, including the duplication of work until QBE is certain transfers have succeeded, and a series of "go/no go" checkpoints as the project rolls out.
The stronger-than-expected productivity lift Manila is delivering in areas such as work turnaround times, meanwhile, may reflect not only economies of scale as the same task is done in Manila many more times for offices around the world, but a quality of work dividend, as QBE emerges as an employer of choice in Manila's offshoring industry.
So far, 90 per cent of its employees there have an undergraduate degree: 30 per cent have postgraduate qualifications.
RBA on course
The dollar's 10 per cent depreciation in May and June explains why the Reserve Bank left the cash rate unchanged at 2.75 per cent on Tuesday.
It says once again it can cut if it wants to, but the declining dollar adds a layer of support to the economy that supplements the Reserve's own monetary easing - a reduction in the cash rate from 4.75 per cent in October 2011 to 2.75 per cent by May this year that has pushed all borrowing costs lower.
The Reserve as good as says it would like the $A descent to continue, in an orderly way of course, but even if that doesn't happen, it will need time to assess the double-barrel impact of a lower currency and low rates.
Employment and jobless numbers are the key measuring sticks, and the June labour force data will be released on Thursday week.
A month's data on jobs may not be enough, however, because the currency effect feeds in slowly: rates may now be on hold until after an election, regardless of whether Kevin Rudd chooses August, September or October.