QBE to raise $825m new equity capital in wake of coronavirus pandemic

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The insurer said in an announcement to the Australian Stock Exchange that the extra capital would come in the form of a new equity placement and a share purchase plan

QBE is looking to raise $825m in new regulatory capital to help it deal with the economic fallout from the global coronavirus pandemic.

The Australian insurer is looking to raise $750m from a fully underwritten placement of new fully paid ordinary shares at a purchase price of AU$8.25, which represents a 9.4% discount to the last closing price of AU$9.11 on Thursday 9 April 2020.

The placement will result in approximately 145.5 million new shares being issued, representing approximately 11.1% of QBE’s existing issued capital.

The insurer is also seeking to raise a further $75m by way of a share purchase plan, under which eligible QBE shareholders will have the opportunity to apply for up to AU$30,000 of new shares without incurring brokerage or transaction costs.

Announcing the move to the Australian Stock Exchange, chief executive Pat Regan said: “Despite the extraordinarily difficult landscape, QBE commenced the year with strong pricing momentum and underlying premium growth.

“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.”

The insurer said that the equity raising will bolster its regulatory capital to 1.9x the group’s prescribed capital amount (PCA), up from the current estimated level of 1.6x, down from 1.71x at 31 December 2019, primarily reflecting the final dividend payment for 2019 and a negative first quarter investment return of around 2%, or nearly $500M, due to extreme volatility across all asset classes including a material increase in global fixed income credit spreads and significant declines in equity markets.

In addition to the equity raise, the insurer is also increasing reinsurance levels and has already derisked its investment book by exiting all equities, emerging market and high yield debt.

QBE said these measures will lift capital above S&P ‘AA’ levels.

The insurer also announced a 9% increase in group gross written premium over the first quarter of 2020 to $4.5bn. This was largely driven by rate increases, which averaged 8% across the group, coupled with “solid volume growth assisted by improved retention in every division”.

Charitable Support

Meanwhile, the insurer’s charitable arm, QBE Foundation, is donating £400,000 to help support coronavirus relief efforts by way of a grant to be split among its charity partners in Europe.

In the UK, grants will be provided to the British Red Cross, CRISIS, Mind and Save the Children.

Grant Clemence, chair of QBE Foundation, said: “QBE Foundation’s aim is to make a lasting difference in communities in which we operate. Now, more than ever before, those communities need our support. By providing these grants, we hope to not only help with much needed funds for the short-term but also support the communities we operate in remain resilient in the long term.

“The British Red Cross has been on the frontline of helping those affected by Covid-19. Meanwhile, our charity partners CRISIS, Mind and Save the Children are working harder than ever to protect vulnerable people.”

Part of the grant money will be allocated to QBE’s offices in continental Europe and QBE’s Toronto office to support local causes.

In addition, funds will be going to smaller charities dealing with specific issues in relation to Covid-19 relief, such as food banks and support for the elderly.