Australia’s QBE Insurance Shares Halted; Balboa Concerns Cited

January 12, 2012

Shares in QBE Insurance Group, Australia’s top insurer, were placed in a trading halt on Thursday ahead of the release of its preliminary 2011 results and amid concerns about an investigation into over-charging involving QBE’s U.S. unit.

QBE shares came under pressure on Wednesday as an U.S. unit it bought less than a year ago was said to be investigated by New York state’s financial regulator.

The investigation was part of a probe on several large banks on whether they overcharged customers on force-place insurance — here the loan servicer steps in and buys an insurance policy in the event of a homeowner failing to keep up their insurance premiums.

Analysts have said the any review as a result of the investigation could hurt QBE’s insurance profit margins, which the insurer has forecast at 11-14 percent for 2011. QBE is scheduled to report earnings on Feb 28.

An important focus for the probe will be the potential conflict at Bank of America involving Balboa Insurance, which it sold to QBE, a source said.

“We suspect the issue is more one for banks than insurers and any political/regulatory review may result in structural changes to the market that pose risks to insurer profitability,” Merrill Lynch analyst Andrew Kearnan said.

“A key factor to understand is whether QBE has any recourse on the back book in the event of financial penalties or litigation to the vendor of Balboa.”

The probe is looking into whether policies being taken up by the investigated banks were issued by their own affiliates. Kickbacks between unrelated companies would also face scrutiny, according the source.

QBE shares fell 1.1 percent on Wednesday when the broader market climbed 0.9 percent.

(Reporting by Narayanan Somasundaram; Editing by Lincoln Feast)

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