QBE to Acquire Winterthur US from AXA for $1.16 Billion

January 5, 2007

In separate announcements, Australia’s QBE Group and France’s AXA SA said they have reached an agreement for QBE to acquire Winterthur’s US operations, principally General Casualty and Unigard, for US$1.156 billion (€883 million). As part of the deal Winterthur US will repay US$636 million (€486 million) of inter-company loans to Winterthur Group. The deal is still subject to regulatory approvals.

AXA is selling part of what it just bought. It recently completed its acquisition of Winterthur from Credit Suisse (See IJ web site Dec. 26). However, when AXA announced the acquisition (See IJ web site June 14, 2006), it indicated that “Winterthur’s US P&C business, which is a profitable super-regional business focused on individuals and SMEs in selected states, is under strategic review.”

As far as QBE is concerned it said the acquisition completes its “strategy of building four major streams of business in the Americas: specialist insurance programs, property and casualty insurance in regional markets, reinsurance and Latin America.” QBE was quite active in the M&A market last year. In the U.S. it acquired National Farmers Union from OneBeacon (see IJ web site July, 27, 2006), and is in the process of acquiring the Praetorian Financial Group from Hannover Re for $800 million (See IJ web site Dec.13, 2006).

Standard & Poor’s Ratings Services indicated that its ratings on both AXA and QBE would remain unchanged (See related article).

Winterthur US’ primary operations are based in Wisconsin. It writes P/C risks through 1,700 independent agents in 33 states. According to QBE, “gross premium income for 2007 is expected to be around US$1.45 billion. The estimated 2006 combined operating ratio and profit after tax, before interest on borrowings and after unrealized gains on investments, are 95.8 percent US$124 million respectively. Interest on borrowings is estimated at US$30 million and unrealized gains are US$13 million, both after tax.” The Company has a staff of around 2,150 staff. QBE said it has “an excellent infrastructure for the expansion of our property and casualty insurance stream.”

QBE also noted that it plans to fund the acquisition of Winterthur US, as well as its acquisition of Praetorian, “largely through a combination of existing excess capital, dividend reinvestment and short term debt, with the balance from an equity placement. The Group’s debt to equity ratio will remain around 40 percent.” It expects to complete both acquisitions in the second quarter of 2007.

Once completed the two acquired businesses will become part of QBE the Americas, headed by President and CEO Tim Kenny.

QBE CEO Frank O’Halloran commented: “Winterthur US gives us a strong footprint in western, mid-west and north-east US states for small to medium property and casualty business through a large base of independent agents. By contrast, the Praetorian acquisition announced in December will more than double the size of our US specialist insurance program business.

“The acquisition of Winterthur US meets QBE’s acquisition criteria; in particular earnings per share accretion in year one,” he added. “Subject to no unforeseen circumstances, we anticipate profit after tax of US$160 million from Winterthur US in the first full year before the cost of funding and synergies.”

Kenny indicated the “acquisition of Winterthur US furthers our focused diversification strategy and completes our infrastructure needs and distribution requirements for the US. We now have a strong presence in specialist insurance programs, property and casualty insurance and reinsurance together with an increasing presence in Latin America.”

QBE is on the way to becoming a US heavyweight. Kenny noted that the Group forecasts annualized gross premium income for QBE the Americas “to be around US$4.6 billion or slightly less than 40 percent of QBE Group gross premium income.”

More details concerning the acquisition may be obtained on the QBE web site at: www.qbe.com.

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