Shares of Insurance Australian Group (IAG)were tumbling on Friday, after Chief Financial Officer of its rival QBE Insurance, Neil Drabsch, said a merger of the two companies did not make sense.
Drabsch told CNBC that the economic conditions have changed dramatically since last year, when QBE first proposed a merger.
"The IAG approach we made last year was done at a time when the previous CEO was in place, we saw that there were potential synergies and also at that stage which are pre-full effects of the economic downturn," Drabsch said. "But today, we have a different scenario."
"In the current conditions, however do you do your sums, you'll find that the returns to QBE by putting together the 2 companies will only give very modest earnings per share," he added.
IAG shares were trading down 5.2% at A$3.99 while QBE fell 0.8% at A$22.38 in line with overall downtrend in the market.
IAG shares hit a 12-month high earlier this week, on speculation QBE was looking at a renewed takeover bid for the company.
In May last year, QBE withdrew an A$8.7 billion ($8.1 billion) offer for IAG aimed at creating Australia’s biggest insurance company.
Drabsch also said that despite the weakening dollar against the Australian dollar, QBE, which derives 70% of its income from its US business, isn't making any strategic changes to its business for now.
"I'm not necessarily worried about it," Drabsch said. "Many products in insurance have a US dollar denomination, so it's not a market we can shy away from."