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Liberty Specialty Markets
Liberty Specialty Markets

QBE 'should move for banks' insurance operations'

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QBE should consider bidding for the general insurance arms of Westpac or Commonwealth Bank of Australia (CBA) to bulk up its presence in the profitable home and personal motor markets, industry analysts say.

Buying either one of the bank-owned businesses makes strategic sense for QBE, as it will give the insurer better economies of scale to compete with IAG and Suncorp, which have a combined share of more than 50% through various brands in the direct channel segment.

“QBE is sub-scale in the Australian home and motor market and to actually make a decent return out of that, they need to do something dramatic and an acquisition like either of those would result in that,” an analyst, who asked not to be named, told insuranceNEWS.com.au today.

“If QBE were not to buy either of those books, my view is that they will continue to struggle to make the required returns on their existing books. QBE is a global commercial lines insurer and they don’t have the retail home and motor brands.

“So if they don’t make a change to how they run that business, I would argue they shouldn’t be in it. They either need to double down or they need to get out.”

Both Westpac and CBA are looking at options for their general insurance operations, including a potential sale at the right price, having previously announced they will focus on their core lending businesses going forward.

A spokesman for CBA says the strategic review it started in 2018 is still going on, while Westpac, which announced last month its general insurance portfolio may be sold, did not respond to a request for an update.

Last September Macquarie Research valued the back books of CBA’s CommInsure home and personal motor portfolios at $500-$800 million.

A recent report in The Australian citing unnamed sources says QBE, IAG and Allianz are interested in the Westpac and CBA businesses. IAG declined to comment on the report while Allianz says it “never confirms or denies any speculation on mergers or acquisitions”.

QBE has been linked to a potential acquisition of the CBA business as recently as last year when CEO Pat Regan did not rule out making such a move if the chance arises, citing a “scarcity of good assets” in the market.

Morningstar Banks and Insurance Equity Analyst Nathan Zaia says the eventual buyer of the Westpac or CBA businesses would be an insurer like QBE that is looking to “extract synergies” for its Australian portfolio.

“If the banks are in a hurry and want to divest and are willing to sell at a reasonable price, that could work out well for QBE,” he told insuranceNEWS.com.au. “Adding scale and synergy (to their home and motor businesses) does make sense. Now might actually be an okay time to do it if you do get the business for a good price.”