Frank O’Halloran will step down as chief executive officer of QBE Insurance Group Ltd. (QBE) after his 13-year strategy of expanding through acquisitions faltered as a run of global catastrophes increased compensation payouts.
O’Halloran, 65, will be replaced by QBE’s global head of underwriting John Neal on Aug. 17, the Sydney-based company said in a statement today. QBE shares have been halted from trading after the company announced plans to replace $500 million of debt by selling stock. Net income fell 45 percent to $704 million in the 12 months ended Dec. 31, it said, citing “one of the worst years on record for catastrophe events.”
The 35-year QBE veteran oversaw a tenfold increase in premiums and 44 acquisitions valued at $7.61 billion since becoming CEO in January 1998, according to data compiled by Bloomberg. The shares have plunged 67 percent since their peak in September 2007.
“I wouldn’t read this as the end of their successful growth-by-acquisitions strategy,” said Mark Nathan, who helps manage about A$3 billion ($3.2 billion) of assets at Arnhem Investment Management in Sydney. “Neal will probably hit the ground running. He knows the business and has been there for some time, so I wouldn’t have thought there would be any sort of slowdown.”
The company today said claims for catastrophes jumped 15.3 percent to $2.4 billion in 2011, including floods in Thailand, 19 U.S. tornadoes, earthquakes in New Zealand and Japan, as well as Cyclone Yasi in Australia’s Queensland state.
QBE tumbled the most in more than 10 years on Jan. 12 after it said 2011 profit fell as much as 50 percent on record natural disaster claims.
Shares of QBE fell 1 percent to A$11.50 in Sydney yesterday, extending this year’s slide to 11 percent. The benchmark S&P/ASX 200 Index (AS51) has gained 5.6 percent in that time.
Trading in the shares was halted today until QBE undertakes a capital raising to replace $500 million of its tier 2 convertible debt, the company said in a separate statement. QBE plans to sell A$450 million in shares to institutional investors and a share purchase plan for retail investors, it said.
Morgan Stanley and Macquarie Group Ltd. are managing the sale of the shares to investors with a minimum bid price of $10.50 a piece, according to terms of the transaction obtained by Bloomberg News. That’s an 8.7 percent discount to the most recent closing price.
The cost of credit-default swaps on QBE fell 25 basis points to 300 as of 11:18 a.m. in Sydney, according to Westpac Banking Corp. That’s on course for the biggest daily decline since Dec. 13, and the lowest level since Oct. 31, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.
After expanding under O’Halloran into offshore markets such as North America, the company founded in 1886 in north Queensland as a one-man business now has operations in 52 countries and more than 16,000 employees. The company switched to reporting in U.S. dollars in 2010, a year in which more than 70 percent of its premiums were generated in currencies other than the Australian dollar.
Neal, 47, will join the QBE board, and O’Halloran will return as a non-executive director “shortly before the 2013 annual general meeting,” the company said today.
“Frank has been the architect of QBE’s international expansion,” said Chairman Belinda Hutchinson in today’s statement. “We believe his continued involvement on the board will be welcomed by investors.”
Neal, who has headed QBE’s global underwriting operations since January 2011, joined the company in 2004 after it bought Ensign, a commercial motor insurer, according to the statement. He has held senior roles at QBE in Europe, including chief operating officer for the wholesale, retail and reinsurance business, and chief underwriting officer for the region.
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