Exposure Fears Halt Trading In Qbe
The Age
Friday September 21, 2001
A free-falling share price forced QBE Insurance to calla halt to trading in its shares yesterday and reveal it faced a net loss of $250 million from terrorist attacks in the United States.
More than 40 per cent had been stripped from the insurer's market value before directors issued a statement that was designed to calm investors panicked about the insurer's solvency.
QBE shares were halted at $3.35, after dropping $2.32, or 40.9per cent, yesterday, taking the total drop in the market value of the insurer to $4 billion in just over a week.
The insurer's position was not helped by ratings agency Standard & Poor's credit downgrade the night before, a move reminiscent of the prelude to insurer HIH's collapse.
QBE general manager Raymond Jones attributed the market's nerves to the HIH collapse.
``It is a complete over-reaction, it is a ridiculous situation," he said. ``I just wonder who the hell is playing games out there. That is part of the problem."
Questions about QBE's exposure had swirled all day, forcing chief executive Frank O'Halloran to issue a reassurance to institutional shareholders and insurance brokers.
There was also speculation that the insurer would need to raise fresh capital to cover losses, which the company later denied.
Mr O'Halloran said QBE was well capitalised and its aviation liabilities to the four crashed aircraft were reserved to the maximum claims exposure.
As well, the personal accident claims had been conservatively estimated and much of the risk was offloaded to reinsurers, who were unlikely to go bust.
A day of skittish trading claimed casualties among other listed insurance companies and banks as concern mounted the financial sector would succumb to a late 1980s-style implosion as the corporate collapse toll mounted following Ansett Airlines and Pasminco going into administration over the past eight days.
Listed investment companies, such as Milton Corporation and J.B. Were vehicle Mirrabooka were sold down heavily, a punishment for their exposure to the banking and finance sectors.
Media stocks and resources were punished in the market vortex created by last Tuesday's tragedy in the US.
Upmarket retailers such as Colorado and Oroton have suffered since last week, as investors fear that an all-out war between the US and sections of the Islamic world could crimp discretionary spending.
A few days before the terrorist onslaught, local homewares group Housewares International purchased two businesses in North America. It shares have since dropped 17 per cent.
A research report from Shaw Stockbroking says the crisis in New York has acted as a trigger to switch out of underperforming stocks and into cash.
The broking house has nominated the ailing prices of companies like PMP and Austar as examples of this flight to capital.
Austrim Nylex, which has been in decline since last year, received a sharemarket caning for which managing director Peter Crowley had no explanation.
``This is not like Pasminco. We already have a standstill agreement with our banks and I expect a satisfactory outcome early next week," he said.
Venture capital funds have also been hit due to the expected shortage of the sort of fresh capital available to speculative investments in which these companies typically specialise.
Local stocks such as Vital Capital, Loftus Pooled Development Fund and Biotech Capital have lost up to 17 per cent of their value in the past 17 days.
© 2001 The Age
