SYDNEY — QBE Insurance Group Ltd. has acquired the Balboa insurance portfolio from Bank of America-Merrill Lynch for an upfront payment of $700 million. The payment covers both the portfolio and distribution rights for 10 years.

QBE said the annualized net earned premium from the distribution agreement will be around $1.3 billion.

QBE, Australia's largest insurer, also said second-half net profit will be around $1.28 billion, which it said was in line with analyst expectations.

Insurance profit margins are below the bottom end of company guidance of 16%-18%, management said, due to both the frequency of catastrophic claims in the second half as well as continuing low interest yields in the U.S., U.K. and Europe.

QBE said that the annualized insurance profit margin before tax from the Balboa acquisition will be within 15%-20% of net earned premium, slightly higher than the group is currently delivering.

QBE will fund the upfront payment through new short-term bank facilities, which the group plans to replace with Tier 2 debt securities.

As for the recent extreme weather events in Australia, QBE estimates the costs for the recent flooding in Queensland was $45 million; for the catastrophes in Queensland, Northern North South Wales and Victoria in January will be $100 million; and the preliminary cost estimate for the damage from Cyclone Yasi will be around $100 million. The group said those claims are within the company's allowances in its business plans.

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