Secret love a $500k sting in John Neal’s tail at QBE

The reality of QBE’s results are that they the best from the company in recent years.

QBE chief executive John Neal. Illustration: Sturt Krygsman.

John Neal’s love life may be the immediate focus of yesterday’s presentation but the reality of QBE’s results are the best from the company in recent years and there are a lot of things to love about the numbers, starting with the first actual stock buyback in recent memory.

Neal has served five years as QBE boss and most of the time was spent putting the house that Frank O’Halloran built back together again.

Yesterday’s numbers showed Neal has done that and more, positioning the company for stronger growth in the future.

In the insurance game you can never be too sure, but on the key metrics like the combined operating ratio, which fell from 94.3 per cent to 93.2 per cent, Neal is ticking all the right boxes.

A lower operating ratio means less premium income used to pay expenses and claims. The attritional loss ratio was also down in the second half, which meant lower levels of small claims.

In the last five years, reserves in each six-month period are actually developing, as in past claims are less than previously stated.

For the six periods before that the company was actually pumping in reserves to cover the claims.

These are on any read an ­impressive set of numbers, with higher levels of gross written premiums, lower expenses and an ­increase in return on equity from 7.5 per cent to 8.1 per cent.

Neal copped a $550,000 cut to his available short-term incentive because he failed to disclose a relationship with one of his secretaries contrary to the company’s code of conduct. He still walked away with $3 million, so the rent should be OK, but the penalty is meaningful and the QBE board has taken the appropriate action to hold him liable for his failure to fulfil his duty.

Breaches of codes of conduct are meaningful and should be penalised especially when perpetrated by the boss who is meant to set the ethical standards for the company. The penalty probably pales into insignificance against the public shame he has suffered.

The reason for the rules is obvious, as the partner may have been in line for promotions, bonuses and first-class trips that may be looked at in a different light if the relationship was known about.

This snafu aside, Neal can now reap the benefits of the efforts he has made to put the company back together again.

The US is now back in the black and the global reach positions the company well to maximise the franchise.

QBE has about 150 people working on data analytics to help pricing decisions, explain claims decisions, customer motivation and the like, and now Neal will spend $50m looking for tech­nology partners to help develop his skills further.

Insurance people don’t talk up cross-customer sales as much as banking did, but in general insurance businesses have as many as nine different insurance lines.

Neal averages about two lines per customer but if he could double or triple that amount the revenue would increase accordingly.

In the US it now has liabilities to offset its fixed-income investments, but QBE does better in a rising interest rate environment than a falling one and Neal is poised to reap dividends from the promised Trump bump, which will push rates higher if the economy gathers pace.

When O’Halloran was running QBE he issued equity to fund his next acquisition — Neal is buying back $1 billion worth of stock over the next three years, which suggests he is taking an alternate tack. Shareholders and customers should be the winners.

McCann’s hard work

Lend Lease boss Steve McCann has the company well primed with an excellent result, bettered only by the future pipeline with $49bn in development projects, $20.5bn in construction projects and $24.7bn in funds under man­agement.

Gearing stands at just 5 per cent, with $3.3bn in available liquidity.

The good news for McCann is that more work is coming offshore than domestically, which opens the horizons even further.

The market liked the result, with the stock up 3.6 per cent to $15.35.

He is in his ninth year on the job and, while he has the company running at peak potential, other things being equal he is closer to the end of his tenure than the start.

Still, his chairman David Crawford is into the 14th year as chair and 16th as director of what was going to be a temporary position.

Regime change would seem an appropriate conversation to be having at Lend Lease right now with a change in chairman the ­appropriate course of action.

Bellamy’s spill

The farce that is Bellamy’s is now screaming out for legal action to force Jan Cameron and Delta Partners to bid for the company.

The two were dealing yesterday in apparent ignorance of the fact that a deal between them would require a formal bid.

Cameron speaks for 18 per cent of the Bellamy’s register and Delta 9 per cent, which adds up to 27 per cent or more than the 20 per cent takeover threshold.

Control has now effectively passed with Rob Woolley quitting as chairman last night and now former banker David Saxelby has emerged as a consensus candidate to replace Woolley.

All that is fine so long as there is no deal to get him there.

Arnold Bloch Liebler’s Leon Zwier is acting for the incumbents.

Proxies lodged last week saw off three of the four board incumbents — assuming the votes held — but didn’t support Cameron.

When that news broke there was a flurry of threats ahead of today’s meeting. Camreon and Delta were threatening every legal manourvre under the sun in an attempt to force Woolley to quit because that would mean control would pass.

ASIC now would seem to have little choice but to intervene, forcing a bid. Failing this, one of the parties could take the matter to the Takeovers Panel.

Either way, the battle for Bellamy’s is reaching an extraordinary finale, in which the principles on which Australian corporate law are based are in danger of being swept to the side.

News of the proxy votes send the Cameron camp into overdrive, declaring “it is a clusterf..k”.

Delta had split its vote supporting two of the Cameron camp but not the ring leader and instead the hedge fund wanted to play kingmaker itself.

This created an even bigger problem for Woolley, who now had two warring shareholders at his throat and in the end he decided he’d had enough.

The remaining board member, Patria Mann, will assess her position after today’s meeting.

There is, of course, some doubt that the proxies will not hold.

But the bottom line is the backroom deals to change control of Bellamy’s without going to shareholders runs contrary to the principle governing takeover rules.

Back in the real world, Goldman analyst Andrea Chong has warned there are downside risks to guidance. Bellamy’s stock was down 3c at $4.27 yesterday.