Australia's QBE says to buy PMI units for A$1.03 bln

SYDNEY (Reuters) - QBE Insurance Ltd (QBE.AX), Australia's top insurer by premium income, said on Thursday it had agreed to acquire U.S. mortgage insurance group PMI's (PMI.N) businesses in Australia and New Zealand and in Asia for a total of A$1.027 billion ($901 million).

The deal, which is subject to regulatory approvals, would be paid 80 percent in cash, with the remaining 20 percent coming in the form of a promissory note from QBE payable in three years, the company said.

"The purchase of PMI in Australia and Asia is in line with QBE's strategy of diversification," QBE's Chief Executive Frank O'Halloran said in an statement.

Earlier this year, QBE made an unsuccessful attempt to buy Australia's top home and car insurer, Insurance Australia Group Ltd (IAG.AX) (IAG), after IAG rejected its A$8.7 billion ($7.6 billion) offer as too low.

PMI Australia is a mortgage insurer for lenders, accounting for about 40 percent of the residential mortgage insurance market in Australia. The company is expected to generate a 2008 gross written premium of around A$200 million. PMI Australia and PMI Asia made an operating profit after tax under U.S. accounting rules of A$109 million in 2007. Its combined operating ratio -- the total of claims, commissions and expenses incurred as a percentage of net earned premium -- was 71.8 percent in 2007.

QBE said it would fund the initial cash component of the acquisition using A$522 million of existing excess capital and borrowing of approximately A$300 million.

The two companies' Nasdaq-listed parent company, PMI Group (PMI.N), was recently downgraded by rating agency Moody's, following rising losses from mortgage securities. The group announced a restructuring of its global operations in August.

QBE shares fell 1.7 percent at A$23.50 on Thursday, caught in a broader sell off of financial stocks amid ongoing credit worries.

($1=A$1.14)

(Reporting by Mette Fraende and Cecile Lefort; Editing by James Thornhill)