The radical restructure plans announced by the Commonwealth Bank of Australia (ASX: CBA) yesterday had many investors talking about the demerger of the wealth management business which includes Colonial First State and the Aussie Home Loans business.
One side note of interest was the announcement that CBA would undertake a strategic review of CommInsure General Insurance, including a potential sale to a specialist insurance provider.
That would have piqued the interest of large global insurers including QBE Insurance Group Ltd (ASX: QBE).
Indeed, the Australian Financial Review reported that QBE and global insurer Allianz were among suitors that are putting together deal teams to assess the acquisition while Insurance Australia Group Ltd (ASX: IAG) is also keeping an eye on the sale.
That raises the question, should QBE acquire CommInsure?
Acquisition History
It's fair to say that QBE does not have a good track record of making successful acquisitions. In February 2018, QBE announced that it was selling its Latin American operations to Zurich Insurance Group and exiting that region.
While the sale was at a $100 million profit, QBE's Latin American operations were running at a loss with a 2017 combined operating ratio (COR) of 113% and an insurance loss margin of 7%.
The same applies to QBE Asia Pacific operations (2017 COR of 115%) and Equator RE (2017 COR of 141%).
Home Turf
It could be argued that CommInsure is better suited to QBE given that its operations are in Australia & New Zealand, an area where QBE has a very good understanding of.
QBE's ANZ operations delivered a combined operating ratio of 92% in 2017 and an insurance profit margin of almost 13% in 2017.
Foolish Takeaway
While the opportunity to acquire CommInsure is tempting and it may come once in a lifetime, I think QBE management should not be distracted by it. In their last investor presentation, they outlined their goal of simplifying QBE by narrowing the focus and returning to its core operations. That's exactly what I think they should continue to do.
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