Pandemic a drag on QBE search for CEO

The COVID-19 pandemic will make QBE’s search for a new chief executive more difficult, fund managers and analysts have warned.

Gone: QBE Boss Pat Regan. Picture” Britta Campion / The Australian

The COVID-19 pandemic will make QBE’s search for a new chief executive more difficult and could drag the process out by at least several months, fund managers and analysts have warned.

While the global insurer has kicked off an internal and external search for Pat Regan’s replacement, most industry experts expect the role to go to an outsider, with no obvious candidate sitting in QBE’s executive ranks.

Mr Regan left QBE on Tuesday following a complaint from a US-based female member of staff over inappropriate text messages and emails sent by the now former chief executive. After receiving the complaint between August 20 and 21, QBE tasked law firm MinterEllison with conducting a sweeping review of Mr Regan’s communications.

The findings were presented at a board meeting on Monday evening, with swift action taken to oust Mr Regan and install chairman Mike Wilkins in the role until a new chief is found.

While the review is understood to have found numerous instances of inappropriate com­mun­ication by the chief exec­utive, QBE was scant with details on Tuesday, prompting some shareholders to criticise the insurer over a lack of transparency.

QBE Group executive for corporate affairs and sustainability Viv Bowers on Wednesday told The Australian that no further details would be released. While the matter was the subject of legal proceedings, QBE was likely to keep quiet, sources said.

The employee who made the complaint is understood to have resigned on the same day and has since engaged lawyers to determine the terms of her resignation.

As the chief executive search gets under way, Wilson Asset Management fund manager Matthew Haupt raised concerns about the impact COVID-19 would have on the process.

“The one thing going for QBE is that the cycle is behind them with premium rates rising, so that may save them. But with COVID-19, interviewing CEOs and getting in contact with people will take a while. And IAG is looking for a new CEO too so there’s a bit of competition there,” he told The Australian.

An offshore person would have to quarantine for a time and relocating might be a challenge during the pandemic, he warned.

“So it’s really disappointing to be looking for a new CEO in such a difficult time.”

The $900m WAM Leaders Fund holds about $30m of QBE shares. “That 6 per cent share price drop hurt us,” Mr Haupt said of QBE share price performance on Tuesday.

“The fundamentals behind the business are great, Pat had done a good job cleaning it up. But for us now it just creates uncertainty while they look for a new CEO. Obviously they weren’t grooming someone for the role so there’ll be an extensive search.”

Vivek Bhatia, who led QBE’s Australian operations until the end of August, announced early last month that he was leaving to take on the chief executive role at ASX-listed Link. The insurer’s group chief risk officer, Peter Grewal, is leaving at the beginning of next year to join London Stock Exchange-listed M&G.

Mr Haupt said no QBE executives were on his radar as potential chief executive candidates and he expected any outsider to come in and continue on the same path as Mr Regan.

“When they appoint a CEO they generally have an idea of the strategy they like. I would have thought the board would want someone with a similar strategy to (Mr Regan),” he said.

Shaw & Partners banking analyst Brett Le Mesurier also warned the pandemic would drag out the chief executive search, predicting COVID-19 could mean the process was extended by six months or so. “But Mike Wilkins is there and he can ride it out for a while like Phil Chronican did at NAB,” he said.

In a note to clients, Mr Le Mesurier flagged concerns about the prospect of a new chief coming in and dashing shareholders’ profit expectations amid hardening premium pricing.

“The link that shareholders have ignored is that premiums respond to claims. This means that claims increase before premiums and when claims stop increasing so do premiums,” he said.

“The new CEO may not only understand this connection but effectively communicate it to ensure that the market’s expectations reflect the most likely outcome rather than an overly zealous interpretation of the value of such rate increases. Profit expectations could be lowered and claims reserves may increase.”

Bell Potter analyst TS Lim said Mr Regan’s exit was bad timing but QBE’s fundamentals were strong and the company was “in good shape”. He expected an internal candidate to win the chief executive race. “I think Inder Singh (the group’s chief financial officer) would be a good candidate because he’s worked so closely with Pat and the brilliant basics strategy,” he said.

QBE shares closed up 1.7 per cent on Wednesday at $10.11, after diving more than 6 per cent on Tuesday.