QBE exec says growth to be driven by deals, premium

By Lilla Zuill

NEW YORK, Sept 8 (Reuters) - A senior executive of QBE Insurance Ltd (QBE.AX), Australia's top insurer, said the company's balance sheet has remained strong despite the credit market crisis, allowing it to pursue expansion through global deals.

QBE has found deals to be priced attractively in the United States and is also open to acquisitions elsewhere, including the United Kingdom, Chief Financial Officer Neil Drabsch said on Monday on the sidelines of an investor conference hosted by Merrill Lynch in New York.

"In many cases these come to us," Drabsch said of potential acquisitions. He added that the group's most recent deal was a case in point.

In recent weeks, QBE agreed to buy the Australian, New Zealand and Asian operations of Walnut Creek California-based PMI Group (PMI.N), which provides lenders mortgage insurance.

Drabsch said that when PMI approached it, he and Chief Executive Frank O'Halloran were initially sceptical of wading into insuring lenders against mortgage defaults. On closer look they found a solid business that they believe can thrive under QBE, which is more strongly capitalized than PMI.

He called the acquisition "opportunistic in this credit crunch," and said the lower rate of homeowner defaults in Australia, where the market is highly regulated, led them to believe the business was more insulated from mortgage woes than in some other parts of the world.

The group projects the PMI deal will add $220 million in net written premiums in 2009.

About two-thirds of QBE's total gross written premiums are sourced outside of Australia, largely from the Americas, Europe and the Lloyd's of London insurance market.

LOOKING FAR AFIELD

Speaking to investors, Drabsch said QBE was for the most part eyeing acquisitions beyond its home border because these posed a better value.

"We have plenty of (financial) firepower if we come across the right acquisitions," Drabsch said.

The group has not been rattled by some of the skeletons haunting other financial services firms, with no direct exposure to subprime mortgage investments or exotic securities, such as collateralized debt obligations (CDO), he added.

The company's equity holdings account for less than 8 percent of total investments, limiting the impact of swings in global stock markets.

Drabsch told Reuters each potential acquisition is vetted for its ability for return on equity (ROE), with the most serious consideration given to targets with the potential for an ROE in excess of 20 percent.

The PMI deal is expected to generate a 25 percent ROE.