QBE snares farm insurer

The transaction, which will deliver more than $1 billion in premium revenue, marks the first of what is expected to be a trio of deals as QBE pushes ahead with acquisitions to increase its income and broaden its business.

However, the acquisition comes as investors question whether a string of deals in the US has delivered on earnings targets.

NAU is a multi-peril crop insurance business with headquarters in Minnesota and offices in the US midwest and California.

Multi-peril crop insurance provides farmers with a safety net for a broad range of natural disasters, including drought, flood and disease.

As it often represents a riskier form of insurance for underwriters, the disasters are often bundled in a single policy and in the US the government subsidises this form of coverage.

In February, QBE chief executive Frank O'Halloran told investors the company had $2.5 billion available for acquisitions and was pursuing opportunities. It is believed to be looking at acquiring a mid-sized South American insurer to increase its business there.

It has also lodged a formal interest in the sale of Dutch-based ING's insurance arm.

Mr O'Halloran, who has overseen more than 100 acquisitions over the past decade, said the deal was in line with the company's long-term strategy of buying specialist businesses to enhance diversification and distribution.

Having missed out on Belgian insurer Fortis last year, QBE's expansion has been partly hampered by a lack of targets over the past year.

While more than 60 per cent of NAU's price tag was made up of goodwill, it represents about 2.6 times book value.

Mr O'Halloran said the price relative to book value reflected the "high quality of NAU's underwriting and management business".

It is believed the insurer is betting on a recovery in premium pricing and is expecting the US dollar to recover.

QBE yesterday told analysts it expected earnings-per-share growth of 3 to 4 per cent in year one, subject to NAU not being hit with any catastrophic claims.

In 2009, NAU wrote $US976 million ($A1 billion) of gross earned premium, while net earned premium was $US354 million. Profit after tax was $US92.5 million.

"NAU is a very well-managed and profitable crop insurance provider in the US with excellent systems," Mr O'Halloran said.

He said deep savings were expected from renegotiating reinsurance costs and cross-selling QBE's agricultural insurance products to NAU clients.

QBE said the acquisition, which is subject to regulatory approvals, would be funded by cash and short-term borrowings.

QBE shares fell 10? to $22.10.