The Reluctant Bride: Insurance Australia Group Rejects QBE’s Latest Offer

By | June 2, 2008

Quake Shatters China’s Sichuan Province; Willis Shows Off New London Headquarters; AIG Wins One, Loses One


After five weeks of high level discussions, Australia’s QBE Group withdrew its offer to acquire Insurance Australia Group Limited (IAG), following the decision of IAG’s board to recommend against accepting the offer.

Basically the board said the increased offer was good, but not enough. Although the $8.3 billion proposal represented a 22 percent premium over IAG’s most recent closing share price, the board called it “inadequate and incomplete.” IAG also pointed out that its recent weakness, along with a soft market, had depressed the share price, and that QBE had undervalued the synergies that acquiring IAG would bring to both companies. It also described the form of the proposal as “not fully developed.”

QBE’s CEO, Frank O’Halloran seemed to close the door on any new initiatives. He stated that QBE would “now continue to focus on the pipeline of acquisitions that have been accumulating in recent months,” which includes “a range of opportunities in the Americas, Europe, Asia and Australia.”

IAG Chairman James Strong, however, left the door open for further discussions. He said IAG remains “willing to engage further with QBE with a view to securing a fully developed offer that provides an acceptable premium and price.”

IAG could remain a takeover target. Over the last year its shares have fallen from above $4.80 to below $3.84. They lost around 48 cents on news of the rejected offer.

The magnitude 7.9 earthquake that shattered China’s Sichuan Province was the worst to hit the country in many years. The latest, and still preliminary, estimates from the Chinese government put the death toll at more than 55,000 with some 30,000 people still missing. Direct economic losses to companies in the region are estimated to be $9.5 billion.

Catastrophe risk modeling firm AIR Worldwide’s initial estimates put total losses to insured and uninsured property at more than $20 billion. AIR estimated that insured losses “will likely exceed $300 million and could reach $1 billion.”

Risk Management Solutions estimates put total losses at between $10 billion and $15 billion, but it also noted that “infrastructure damage and interruption to economic activity” would probably increase total losses. Although the quake’s epicenter was in a “relatively sparsely populated area, it was powerful enough to cause damage in Chengdu — 90 kilometers from the epicenter and China’s 10th largest city by gross domestic product (GDP),” RMS added. More than 30 Fortune 500 companies and 12,000 domestic organizations are situated around the city.

The global community’s response has been an outpouring of aid offers, not just from governmental and non-governmental agencies, but also from private companies. Both AIG and Chubb pledged $1 million in relief funds.

China’s open acceptance of help from abroad is in sharp contrast to the adamant rejection of similar offers by Myanmar’s (Burma’s) ruling generals. Although they recently agreed to admit foreign aid workers into the country, it remains to be seen how many will actually get there. More than 125,000 people are reported to have died and more than a million are in need of food, shelter and medical attention.

More than one commentator remarked on the difference in the Chinese government’s current response and its actions after the 1976 Songpan magnitude 7.2 earthquake, which struck less than 60 miles from the current site. Everything then was hushed up, few foreign observers were allowed near the area and the number of dead and injured are still “state secrets.”

Willis CEO Joe Plumeri was in fine form as he hosted a press briefing in Willis’ striking new London headquarters building. Located at 51 Lime Street — just across from Lloyd’s — it rises 28 stories in a tiered design by the visionary architects Foster + Partners. The building (already dubbed “Plumeri’s Palace” by London’s insurance community) won the “2007 New City Architecture Award for its unique architectural form and contribution to the streetscape and skyscape of the City of London,” a bulletin said.

At 125 meters (410 feet), it’s the fourth tallest skyscraper in London. It’s also one of the most modern and the greenest. Foster’s design incorporates many state of the art environmental features, which reduce energy use and maximize recycling.

Plumeri stressed that the offices are designed to maximize contact and interaction among the 2,000 Willis employees who work there. Open spaces, including outdoor terraces with stunning views of London, combine with open interiors to encourage interaction between the brokers and administrators. “Even my office doesn’t have a door,” Plumeri assured the press.

After 32 years at CitiGroup, Plumeri bought a banker’s financial acumen to the insurance industry. His tenure at Willis has seen the company hold an initial public offering (in 2001), consolidate its position as the world’s third largest international broker, eschew contingent commissions, and embrace transparency with its clients.

American International Group can at least take heart that Manchester United won the European Champions League. England’s best know football (soccer) team has sported AIG’s logo on its jersey’s since 2007, when AIG signed a $100 million sponsorship deal. However, the moment of triumph was tempered with the announcement from the U.K.’s Financial Services Authority that it had levied a $1.26 million fine against AIG’s UNAT subsidiary for a series of call center violations.

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Insurance Journal West June 2, 2008
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