QBE in talks to buy Zurich unit

New QBE Group CEO Andrew Horton. Picture: Britta Campion / The Australian

The $18.3bn QBE Insurance is understood to be in talks with Zurich Insurance about an acquisition of its general insurance unit.

Working on the divestment for Zurich are Goldman Sachs and PwC, and the understanding is that the sale process for bidders is now into the second round.

On offer is Zurich’s Australian general insurance division, excluding its travel insurance arm.

Zurich invested heavily in travel insurance in Australia with the acquisition of the listed Cover-More in 2017 for $741m.

Some believe the general insurance business on offer is worth about $500m.

However, one possibility is that Zurich just opts to sell the renewal rights for contracts, which would lead to a sale happening at a nominal sum.

Also thought to have been taking a look at the business is QBE’s rival, IAG.

The speculation about QBE’s interest in Zurich’s operations comes as recently appointed chief executive Andrew Horton has expressed his desire to grow the business in the area of personal insurance lines such as home and motor cover.

This is in contrast to what Macquarie analysts said in September, when they pointed out that QBE’s core business was global commercial insurance.

They said they did not see QBE as the natural underwriter of personal, motor and home insurance in Australia, mortgage insurance or US crop insurance.

The portfolios would dilute QBE’s return on equity, they said, and this was due to lower margins and higher capital costs.

QBE’s valuation had been lagging its peers and, while earlier some had floated the idea of a sale by the company of its US crop insurance units, the understanding is that it is committed to that part of the business. Mr Horton assisted British insurer Beazley in its US expansion in specialty lines, which are QBE’s core business.

Analysts have said QBE’s North America products were consistent with its global offering and provided diversification for reinsurance.

QBE’s Australian personal insurance unit was valued at $750m-$825m by analysts in September.

The insurer earlier competed strongly this year for CBA’s general insurance unit, which was sold for $1bn to Hollard Australia.

Globally, Zurich has three core business segments: general insurance, global life and the North American insurance business Farmers.

Zurich purchased ANZ’s OnePath Life insurance business in 2019 for $2.85bn.

Industry experts say the Swiss financial services giant may be looking to exit the local general insurance market because it is sub-scale and has a chequered history here.

But general insurance is considered highly profitable.

For the six months to June, Zurich’s Asia-Pacific arm generated $US1.56bn of gross written product, up 10 per cent on the previous corresponding period.

Zurich is prominent in general insurance in Australia with 3 per cent of the market share, but Allianz Australia is the largest foreign-owned insurer.

Other major players in Australia are IAG, Suncorp and QBE.

Major players are expected to continue dominating the industry over the next five years, with rising premiums supporting revenue growth, says IBISWorld.

Of all the products, motor vehicle insurance accounts for most of the revenue, while home insurance accounts for 19 per cent and reinsurance 15 per cent.

Industry revenue is expected to increase at an annual rate of about 0.9 per cent over the next five years to $70.2bn.

CBA’s insurance exit this year followed a sale by Westpac of its general insurance division to Allianz for $700m last year, with banks focusing more on their core lending operations.