Best Downgrades QBE and Subs’ Issuer Credit Ratings; Affirms FSR

December 12, 2013
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A.M. Best Europe – Rating Services Limited has downgraded the issuer credit ratings (ICR) to “a” from “a+” and affirmed the financial strength ratings (FSR) of ‘A’ (Excellent) of UK-based QBE Insurance (Europe) Limited and QBE Re (Europe) Limited, as well as QBE Insurance (International) Limited (Australia).

“These companies are key operating subsidiaries of QBE Insurance Group Limited (QBE) (Australia), the non-operating holding company of the QBE group of companies,” Best explained. The bulletin also said Best has downgraded QBE’s ICR and senior debt ratings to “bbb” from “bbb+”, as well as the debt ratings of the perpetual preferred securities to “bb+” from “bbb-”.

In addition Best has revised the outlook for the FSR to negative from stable, while the outlook for all ICRs and debt ratings remains negative. The downgrades follow the announcement on 9 December 2013 that QBE has revised its full year forecast for 2013 to a level that Best said “falls short” of its expectations.

Best did indicate that the “group’s consolidated risk-adjusted capitalization and financial leverage position are expected to improve by year-end 2013, but not to a level supportive of the “a+” ratings held by QBE’s operating entities prior to this rating action.

“Moreover, the revised forecast brings QBE’s recent performance to a level that falls short of A.M. Best’s expectations with regard to technical profitability. This is due to a number of revisions including greater than expected reserve strengthening on liabilities associated with US program business. Furthermore, the group’s profit-after-tax has been negatively affected by material write-downs of goodwill and other intangible assets.”

Best said the “negative outlook on the ratings reflects the uncertainty surrounding QBE’s future performance and financial flexibility.

“Positive rating actions are unlikely at this time. Worse than expected performance, further material reserve strengthening or impairment of the group’s financial flexibility could lead to negative rating actions.”

The following debt ratings have been downgraded:
QBE Insurance Group Limited—
- to “bbb” from “bbb+” on $211 million 9.75% senior unsecured fixed rate notes, due 2014
- to “bbb” from “bbb+” on £191 million [$313 million] 10.00% senior unsecured fixed rate notes, due 2014
- to “bbb” from “bbb+” on £550 million [$902 million] 6.125% senior unsecured fixed rate notes, due 2015
- to “bbb” from “bbb+” on $853 million 2.50% senior convertible securities, due 2030
- to “bb+” from “bbb-” on $550 million 6.797% perpetual preferred securities (issued by QBE Capital Funding II L.P. (Jersey) and guaranteed by QBE)
- to “bb+” from “bbb-” on £300 million [$492 million] 6.857% perpetual preferred securities (issued by QBE Capital Funding L.P. (Jersey) and guaranteed by QBE)

Source: A.M. Best Europe

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