The accident-prone QBE Insurance Group Ltd (ASX: QBE) this morning announced a $750 million capital raising in order to strengthen its balance sheet and pay down debt. The group will enter a trading halt today while the market digests the interim results announcement and the equity raising takes place.
The equity raising is part of a series of capital management initiatives announced including the issue of more debt and removal of the 1% discount on the group's dividend reinvestment plan.
The group's half-year net profit of US$392 million was down 18% on the prior corresponding period (pcp), a result largely foreshadowed due to higher-than-expected claims in its Latin American and other overseas markets.
On July 29 first-half earnings were downgraded after an announcement that it would have to fund higher claims reserves to the tune of $170 million after running into trouble primarily in its underwriting operations in Argentina.
However, it's not just Latin America that has been causing QBE problems, North American markets have also proven too-hot-to-handle for QBE in recent years. Today the group announced the sale of some non-core assets in the U.S. business, although it will retain the U.S. middle markets business in the belief it will deliver good returns over time.
QBE will also partially IPO its Australian mortgage insurance business for lenders, which allows lenders to insure the credit risk in mortgage lending. QBE's strategic thinking being that the capital raised will allow the publically-listed business to grow quicker, while QBE retains an ownership interest to enjoy the benefit.
Cash earnings per share came in at US33.2 cents down around 33% on the prior corresponding period's US49.3 cents. While an interim dividend of 15 cents per share was also announced, down 25% on the prior corresponding period.
QBE has developed an unfortunate track record of having accidents more regularly than some of its clients and today's announcements underlines just how far it has to go in its transformation strategy. Uncertainty remains as to whether or not QBE is finally getting a firm grip on its global operations, in particular the complex Americas markets which have proven so problematic to a management team looking to prove its credibility.
Although the group once again announced that the outlook is reasonable, shareholders will have to be prepared to tough it out for the long term. Others may conclude that their money is better employed elsewhere given the uncertainty as to whether or not there really are better days ahead.
