QBE Group (ASX:QBE) announced this morning that QBE North America Operations have entered into an agreement for the sale of its Mortgage and Lender Services business to National General Holdings Corp. in North America. QBE has previously advised that QBE NAO has been undertaking a strategic review of the M&LS operations and has concluded the business is not core to its long term strategy.
National General is a specialty personal lines insurance holding company founded in 1939 and headquartered in New York. The company provides a wide array of personal and commercial insurance products.
National General will acquire the entire QBE NAO’S M&LS business and will assume the existing insurance liabilities with an equivalent amount of cash and other assets through a reinsurance transaction. The total cash consideration is expected to be approximately $90million and is payable at the transaction close. The transaction is expected to close on 30 September 2015, pending regulatory approval.
The sale of the M&LS business is expected to represent a $120million loss on QBE FY15 net profit before tax, mainly due to one-time non-cash charges and write-offs associated with the transaction. Some of which will be recognised in QBE’s 2015 interim results reflecting the held for sale status of the asset at 30 June 2015. The sale however will free up $100million worth of capital that will be available for reinvestment elsewhere for QBE NAO.
As a result of the sale, gross written premiums will reduce by around $400million, however QBE NAO’s budgeted combined operating ratio and return on allocated capital is expected to improve by approximately 1.5% and 1.8% respectively.
QBE Group CEO John Neal said: “As previously advised, we have been evaluating a range of strategic options with regards to M&LS business in North America. The sale of this business is a pleasing result as we look to focus on commercial lines and significantly build out our specialty underwriting capabilities in North America.”
In January this year QBE announced the strategic sale of its US and Australian Agency businesses as part of a plan to raise capital. The sales were at attractive prices and as a result investors bought up QBE shares. Not long after, the company reported promising 2014 results and its price has experienced significant growth ever since. Following today’s announcement, QBE shares have climbed 1.46 per cent as of 11am AEST.
We at Wise-Owl recommended a BUY on QBE in April this year at $12.84. Since our recommendation QBE has gained 13.7 per cent in only three and a half months.
Author: Ben Visser
Jul 16, 2015
Ben is a Wise-owl equity analyst focusing on ASX blue-chips stocks. Ben has a Bachelor of Business in Finance majoring in property valuations and management. In his role at Wise-owl Ben conducts in-depth fundamental and technical analysis which helps him to find profitable investment opportunities on the ASX and abroad.