Market release: Long term distribution agreement with Bank of America in the US and acquisition of Balboa insurance portfolio

Friday, February 04, 2011

QBE has entered into an initial ten year distribution agreement with Bank of America for lender placed and voluntary homeowners, contents, motor and other related consumer lines and associated services. Lenders' mortgage insurance is not included. As part of the agreements, QBE will assume the outstanding claims and unearned premium liabilities of Bank of America's wholly owned subsidiary, Balboa Insurance Company and affiliated entities in return for matching assets ("portfolio transfer"). The agreements, which are subject to regulatory approvals, are expected to be completed in the second quarter, with the portfolio transfer effective on 1 April 2011.

QBE estimates that the annualised gross earned premium and net earned premium from the distribution agreement will be around US$1.5 billion and US$1.3 billion respectively.  We expect that the annualised insurance profit margin before tax, after catastrophe allowances, amortization of cost of the distribution rights and portfolio transfer and the expenses of distribution, will be slightly higher than that currently achieved on QBE's worldwide net earned premium and within the range of 15% to 20% of net earned premium.

The agreements involve the following:

1. the assumption of insurance liabilities of Balboa and its affiliates of approximately US$1.2 billion matched by tangible assets of an equivalent amount; and

2. the upfront payment to Bank of America of US$700 million for the distribution rights and the portfolio transfer, which will be substantially amortised in the first three years.

The funding of the distribution rights payment initially will be from new short term bank facilities which are intended to be replaced at the appropriate time by Tier 2 debt securities acceptable to regulators and ratings agencies. The expected profits for 2011 and reinvestment of the 2010 final dividend through dividend reinvestment and a dividend underwriting arrangement will preserve the existing capital adequacy.

Mr. Frank O'Halloran said "The distribution agreement with Bank of America in the US and the portfolio transfer provide QBE with a specialist personal lines portfolio which is complementary to the Sterling National business acquired in 2008. QBE's business in the US will now be made up of five major segments, namely, lender placed and voluntary homeowners, contents and motor primarily through financial institutions (GWP of US$2.1 billion), specialty insurance programmes (US$1.5 billion), crop insurance (US$1.2 billion), regional agency and broker (US$1.3 billion) and reinsurance (US$0.5 billion)."

He added "QBE's strategy in the US of specialisation for the majority of business has enabled it to outperform the market in recent years, with 2010 producing a preliminary combined operating ratio of 89.7% and a 19% increase in underwriting profit to US$309 million. We now have sizeable market shares in the lender placed homeowners, specialty insurance programme and crop sectors."

For further information, please contact:

Investor Relations
Tel: +612 9375 4636

QBE Insurance Group Limited
ABN 28 008 485 014
82 Pitt Street                                                                                     

Media Enquiries
David Symons
Tel:  +61 [0] 410 559 184

QBE Insurance Group Limited is listed on the Australian Securities Exchange, is recognised as one of the top 25 global insurance and reinsurance companies as measured by net earned premium and has operations in 49 countries.

Additional Information

Bank of America

Bank of America is one of the world's largest financial institutions, serving individual consumers, small- and middle-market businesses and large corporations with a full range of banking, investing, asset management and other financial and risk management products and services. The company provides unmatched convenience in the United States, serving approximately 57 million consumer and small business relationships with more than 5,800 retail banking offices and approximately 18,000 ATMs and award-winning online banking with 29 million active users. Bank of America is among the world's leading wealth management companies and is a global leader in corporate and investment banking and trading across a broad range of asset classes, serving corporations, governments, institutions and individuals around the world. Bank of America offers industry-leading support to approximately 4 million small business owners through a suite of innovative, easy-to-use online products and services. The company serves clients through operations in more than 40 countries. Bank of America Corporation stock (NYSE: BAC) is a component of the Dow Jones Industrial Average and is listed on the New York Stock Exchange.

Balboa Insurance Group ("BIG")

For over 60 years, BIG has provided risk management and loss mitigation solutions to financial institutions in the mortgage and auto finance industries.

On 1 July 2008, BIG's former parent, Countrywide Financial Corporation, was acquired by Bank of America.  On 1 January 2009, all BIG entities became part of Bank of America Insurance Group.

BIG is licensed in all 50 states with the exception of Louisiana, where it is licensed for surplus lines only.  BIG is headquartered in Irvine, California.

Companies in the BIG general insurance group:

  • Balboa Insurance Company
  • Meritplan Insurance Company
  • Newport Insurance Company
  • Newport E & S Insurance Company
  • Balboa Warranty Services Company

Lender Products

  • Lender Placed Insurance Programs
    • Lender placed flood and flood gap
    • Lender placed fire
    • Lender placed wind and hailstorm
    • Real Estate Owned property and liability coverage
    • State of the art insurance tracking
  • Auto Risk Mitigation
    • Collateral Protection Insurance (for the lender in the event no other insurance is in place at the time of the loss)
    • RepoSource (proprietary insurance recovery program)
    • TrackSource (proprietary insurance process flow tracking system)

Consumer Products

  • Homeowners Insurance
  • Renter Insurance
  • Automobile Insurance