Less than a week after paying out it’s final 27 A cents share dividend, global insurer QBE has launched a $A1.234 billion capital raising to strengthen its balance sheet to the point where it is “demonstrably strong” to cope with the growing pressures from the COVID-19 pandemic.
The company said it would raise a total of $US825 million ($A1.234 billion) through a $US750 million ($1.17 billion) institutional and $US75 million ($117.4 million) retail share purchase plan that will increase the insurer’s total shares by more than 11%.
The details of the “pre-emptive and decisive” capital raising came alongside a trading update, where QBE said despite disruption caused by COVID-19, the company had seen group-wide premium rate increases of 8%, with particularly strong rate growth in North America, following the $300 million hit to revenue after severe weather wiped out crops and caused a spike in agricultural claims.
QBE said the capital raising will position the company to withstand a range of severe economic and investment market downside scenarios, as the industry grapples with how to respond to the crisis.
“The capital plan we have outlined positions us to navigate this period of extreme uncertainty with demonstrable strength and gives us the flexibility to pursue organic growth opportunities that may arise over the medium term,” QBE chief executive Pat Regan said in a statement.
The issue will be made at $A8.25 a share which is a 9.4% discount to the last closing price of $9.11 on the Thursday before Easter.
QBE’s CEO Pat Regan warned yesterday investors to brace for a deep and extended recession, saying the events over the past few weeks had been unprecedented from a “health, personal, societal, financial markets and economics perspective” and predicted a long economic downturn.
“We’ve all been dealing with a set of circumstances pretty much unimaginable even a few weeks ago,” Mr. Regan said in a statement with the release.
“The suggestion the world will go back to normal within a few months seems unfortunately unlikely and it’s difficult not to foresee a deep and extended recession.
“But nobody knows exactly how the situation will play out.”
QBE has also taken steps to de-risk its investment assets, including exiting all equities, emerging market and high yield debt and boosting its reinsurance cover from $US150 million to $US275 million to safeguard crop insurance from future hail events.
Mr. Regan said he was not sure the economy would reach QBE’s most extreme scenario but added “we’re in for a long road to a full recovery”.
“Thinking practically about when we can all get back to work, when our offices will be full again, that doesn’t feel likely at all in the shortish term,” he said.
The final dividend of 27 A cents a share cost QBE $354 million and was paid on April 9 (the Thursday before Easter). QBE said in a statement on Wednesday, (a day after APRA had told financial groups to think carefully about paying dividends) that it had done that:
“The Board has carefully considered APRA’s new guidelines regarding the payment of dividends by financial institutions in the currently volatile COVID-19 economic environment.
“Following due consideration, the Board is satisfied that it is appropriate to pay the Group’s 2019 final dividend of 27 Australian cents per share on Thursday, 9 April 2020 as scheduled.
So why didn’t QBE drop the final dividend and retain the $354 million in cash if things are going to get much tougher, as CEO Reagan said on Tuesday?
