Did QBE Insurance let its $8.2 billion takeover proposal for Insurance Australia Group lapse last night after failing to win support from the IAG’s board?
There was no announcement of any extension of the suggested bid terms before the deadline QBE set two weeks ago when it extended them a second time.
So it would seem QBE’s proposal of 0.142 QBE shares and 70 cents for each IAG share expired at 5 pm Sydney time without a statement.
But the Sydney Morning Herald claimed this morning that QBE would reveal another extension today.
There were no updates from company spokesmen last night.
IAG has maintained the offer is too low.
But shareholders in Insurance Australia GThe company said that the profit from underwriting insurance policies fell 70% to $181 million in the quarter Pre-tax underwriting profit at Berkshire Hathaway Reinsurance Group, which sells catastrophe coverage, dropped 95% to $US29 million.
Most US listed insurers have reported declines in first-quarter profit on the falling value of investments, slipping rates for commercial coverage, and higher costs from auto accidents.
So even a highly regarded world class insurer like Geico and other groups in the Berkshire Hathaway empire can’t shake off the problems in the insurance sector.
Apart from higher costs from storm problems in NSW, Britain and a lesser extent in Queensland, that could be the background for the current state of IAG’s insurance business.
Buffett warned in the annual report of Berkshire Hathaway at the start of the year (in his letter to shareholders actually) that insurance returns would not be stellar in 2008.
The insurance cycle is not favourable and that has coincided with a jump in capacity around the world as fewer big disasters worry the industry, and falling interest rates and the credit crunch, ruin investment returns.
In its recent update IAG said that its insurance margin would contract to the range of 6%-8% for the year to June, from the bottom of the range of 9%-11% as forecast with the interim result in February.
IAG has reported some growth in the cost of car claims (claims inflation, as it is called in the industry) and not surprising, Berkshire Hathaway’s Geico car insurance arm, one of the largest in the US, reported similar experiences in the March quarter.
Geico’s insurance margin fell to 6.1c in the dollar (of premium income) compared to 10.3c in the same period a year earlier.
This isn’t to say that IAG has problems: it does in its British expansion and the way it is responding in Australia to softening rates. Insurers everywhere have seen returns from the markets cut by the credit crunch.
But there has been a turning in insurance returns around the world. QBE knows that and it is trying to get IAG on the cheap before the problems reveal themselves, perhaps in its own books.
QBE’s indicated offer now values IAG at around $8.2 billion thanks to the rise in QBE shares in the past 10 days.It weas originally worth around $7.7 billion.
But because the bid wasn’t formally made, QBE can come again, especially with improved terms to try and win IAG’s nod of approval, which is needed because of the large group of small shareholders in the register.
QBE shares hit $25.57 yesterday, up 3 cents, IAG rose 2c to $4.36.
Based on the bid terms of 0.142 of QBE’s shares and 70c cash IAG shares were valued at $4.33 on QBE’s closing price last night.roup and QBE wondering about the latter’s ambitions should pay heed the comments at the weekend of Warren Buffett and his Berkshire Hathaway company, which is one of America’s largest insurers.
Things are tough in general insurance around the world, not just in Australia and not just with IAG.
As reported, Berkshire Hathaway said on Friday that first-quarter profit dropped 64% as falling rates cut returns from its huge insurance operations.
The company also reported $US991 million in investment losses as it marked down the value of derivative contracts.
It said net profit dropped to $US940 million, from $US2.6 billion, in the first three months of 2007.
