‘Getting information is like pulling teeth. Understanding QBE is a Sisyphean task. This is the most impenetrable of black boxes.’ Photo: Louie Douvis

NOT one big cyclone, earthquake or flood. Nary one major catastrophe marred QBE’s latest result, only four minor “events” costing a mere $103 million.

Despite this dearth of big claims though, the global insurance group did have a “Category Five” hissy fit.

In late February, QBE sooled its lawyers and crisis management experts onto BusinessDay for having the cheek to state a fact, that is that the company had “pledged” its Australian assets.

As it turned out, QBE and its indignant solicitors from Ashurst conceded a few weeks later after much prompting that, yes, all right there had been some pledging of Australian assets. Just a smidgen.

Pledging means passing control of an asset to somebody else, usually in return for cash. Hence the paranoia on QBE’s part. If there were to be a financial catastrophe and QBE’s Australian policyholders needed to claim on the group’s assets, those assets might belong to somebody else.

This is precisely what regulators, reserves and disclosure requirements are for – to make sure the money is there. Yet the Australian Prudential Regulatory Authority has declined to be drawn on the subject.

At least QBE had the decency to backtrack with a sense of humour. A week after its savage denial that Australian assets had been pledged for overseas acquisitions, it admitted that there had been one miniscule pledge.

For some reason, “a security interest” had been granted by QBE over a Toyota Hilux in the NSW central coast industrial town of Tuggerah in 2009.

Besides this whimsical “Tuggerah transaction” it soon transpired that there had also been a twin-set of $200 million pledges to raise some cash in the aftermath of the September 11 terrorist attacks.

After further inquiries still, QBE denied that a $1 billion contingent liability in its 2006 accounts relating to ”ABC financial assets pledged for funds at Lloyds” represented a pledge of the group’s Australian assets.

It sure looked like one. Although the assets had been pledged by a group of QBE’s controlled entities starting with the name Mantis Reef and domiciled in the Cayman Islands. Perhaps they really did belong to QBE’s Cayman Islands division.

Whatever the case with the enigmatic Mantis Reef securities, QBE had pledged something to ensure that $1 billion went to Lloyds of London – and low-lying Caribbean Island structures were part of the picture.

You see the point. Getting information is like pulling teeth. Understanding QBE is a Sisyphean task. This is the most impenetrable of black boxes.

At this juncture it should be noted that the pledges identified by BusinessDay seem to have been redeemed. Pledging no longer appears to be an issue which undermines the asset base of QBE, rather one which undermines credibility.

John Neal, the new chief executive of QBE, has been in New York on an investor road-show over the weekend. He travels to London tonight for a series of presentations by his divisional heads to analysts and funds managers.

Communications and credibility are top priority. So far, Neal has done a good job – raising money, re-basing expectations down and keeping the stock price up.

But there is a nagging and overweening suspicion that much more needs to come out. There is a feeling, confided one analyst this week, that QBE needed to have a confession session.

Neal replaced Frank O’Halloran earlier this year.

In his 12 years at the helm, O’Halloran had made some 120 acquisitions.

It defies logic, let alone historical precedent, to assume that there can be a seamless succession here; no write-downs or mea culpas that is, in the wake of a man who has forged a quick-fire $16 billion empire across 52 countries in one generation.

Leighton Holdings’ former chief Wal King is the most apposite parallel, an uber-successful executive and empire builder whose empire’s flaws only came to light after his departure.

Like King, O’Halloran was to stick around. Until an announcement 10 days ago, he was to have stayed on the board.

The market didn’t like it. Fortuitously for the transition process – it would not have been comfortable for Neal to have the dominant figure of O’Halloran signing off on his every move – he will no longer join the board.

Instead, a ”no-compete” agreement has been waived and the former chief executive is to become chairman of Steadfast Group, a network of insurance brokers. This is not an ideal separation either. QBE underwrote $760 million of Steadfast insurance last year. Still, at least there is distance now.

Now some of the market musings can perhaps be addressed more frankly. Now the US accounts for the lion’s share of assets, but it is also the trouble spot.

It has dusted $1 billion in gross written premium (GWP) since 2007. Its crop insurance business has been hit by the drought and its lender-place insurance operation (LPI) has lost customers, suffered shrinking margins and been under pressure from regulators.

New management has been guiding expectations lower on both the big US operations: crop and LMI. This week there should be a more informed view in the market, given the presentations at the weekend. There is also concern over reserving of the US operations. On UBS figures, North America accounts for 23 per cent of net earned premium (NEP) but only 16 per cent of reserves.

There are myriad other issues. One of the most mysterious is QBE’s very own ”captive” reinsurer, Equator Re. That QBE does a good deal of its reinsurance through this Caribbean entity, owned by none other than itself, is something of an eyebrow-raiser.

QBE is no longer a growth stock. It is in repair mode now. It has run out of old accident year reserve releases and capital is thin. And in continuing to re-base expectations and deliver a cogent corporate strategy the new management under Neal has one of the toughest gigs in the market.

Heralding a new era of openness and accountability would be a start. If some bad news dribbles out and some confessions occur, that is a good thing. If the closed culture and the secrecy remains, assume there is something big and bad to hide.