QBE strikes $700m Bank of America insurance agreement, acquires BOA arm
QBE has entered into an initial ten year distribution agreement with Bank of America for lender placed and voluntary homeowners, contents, motor and other related consumer lines and associated services.
Lenders' mortgage insurance is not included.
As part of the agreements, QBE will assume the outstanding claims and unearned premium liabilities of Bank of America's wholly owned subsidiary, Balboa Insurance Company and affiliated entities in return for matching assets.
The agreements, which are subject to regulatory approvals, are expected to be completed in the second quarter, with the portfolio transfer effective on 1 April 2011.
QBE estimates that the annualised gross earned premium and net earned premium from the distribution agreement will be around US$1.5bn (£930m) and US$1.3bn respectively.
The group expects that the annualised insurance profit margin before tax, after catastrophe allowances, amortization of cost of the distribution rights and portfolio transfer and the expenses of distribution, will be slightly higher than that currently achieved on QBE's worldwide net earned premium and within the range of 15% to 20% of net earned premium.
The agreements involve the following:
- The assumption of insurance liabilities of Balboa and its affiliates of approximately US$1.2bn matched by tangible assets of an equivalent amount;
- The upfront payment to Bank of America of US$700m for the distribution rights and the portfolio transfer, which will be substantially amortised in the first three years.
QBE said the funding of the distribution rights payment initially will be from new short term bank facilities which are intended to be replaced at the appropriate time by Tier 2 debt securities acceptable to regulators and ratings agencies.
It added the expected profits for 2011 and reinvestment of the 2010 final dividend through dividend reinvestment and a dividend underwriting arrangement will preserve the existing capital adequacy.
QBE group CEO Frank O'Halloran continued: "The distribution agreement with Bank of America in the US and the portfolio transfer provide QBE with a specialist personal lines portfolio which is complementary to the Sterling National business acquired in 2008.
"QBE's business in the US will now be made up of five major segments, namely, lender placed and voluntary homeowners, contents and motor primarily through financial institutions (GWP of US$2.1bn), specialty insurance programmes (US$1.5bn), crop insurance (US$1.2bn), regional agency and broker (US$1.3bn) and reinsurance (US$0.5bn)."
He added "QBE's strategy in the US of specialisation for the majority of business has enabled it to outperform the market in recent years, with 2010 producing a preliminary combined operating ratio of 89.7% and a 19% increase in underwriting profit to US$309m.
"We now have sizeable market shares in the lender placed homeowners, specialty insurance programme and crop sectors."
