QBE should offload LMI, US Crop and motor insurance: Macquarie

QBE’s new boss may opt to sell its motor insurance, lenders mortgage insurance and US crop insurance units.

QBE’s new chief executive Andrew Horton may opt to sell its motor insurance, lenders mortgage insurance and US crop insurance units, say analysts at Macquarie Group.

Mr Horton was appointed to the top job in March and has been due to take on the role this month, with many expecting his first move to be a strategic review of the overall business.

The analysts deem the units non-core and say that the divisions account for about 18 per cent of the group’s gross written product.

They believe that should the businesses be offloaded, they could create between $US1.55bn and $US1.8bn of sale proceeds or 8.9 per cent to 10.2 per cent of the group’s overall market value.

However, unlike some around the market who believe a sale of the North American business could be on the agenda, the analysts believe that this is unlikely to be the case.

“We don’t believe QBE will exit North America as the products are consistent with QBE’s global offering and provides diversification for reinsurance,” the analysts said.

Macquarie analysts said parting with non-core assets could be a way for new management to address QBE’s lagging valuation compared to its global peers.

They say that QBE’s core business is global commercial insurance, and they did not see QBE as the natural underwriter of Personal Motor and Home insurance in Australia, mortgage insurance or US Crop insurance.

“These portfolios dilute QBE’s Group return on equity,” they said.

This was due to lower margins, higher capital, and lower margins respectively.

Each unit contributed to the long-term valuation discount compared to its peers.

The analysts estimate that the Australian personal insurance unit could achieve a sale price of between $750m and $825m while lenders mortgage insurance could be worth between $205m and $270m and US Crop between $600m and $700m.

Speculation has existed that QBE has sounded out the market for its lenders mortgage insurance unit in the past and considered listing the unit through investment bank Goldman Sachs a number of years ago.

The analysts said that if a sale went ahead, they believed that the company would reinvest proceeds into organic growth opportunities to improve scale in other portfolios.

They added that QBE would not sell its North American unit because executives in the company have a growth mindset.

Chairman Mike Wilkins previously assisted IAG in moving into Asia while Mr Horton assisted the British insurer Beazley in its US expansion in specialty lines which are QBE’s core business.