A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and the issuer credit ratings (ICR) of “a+” of the pooled and reinsured members of QBE North America Insurance Group (QBENA Group).
In addition Best upgraded the ICRs to “a+” from “a” and affirmed the FSR of ‘A’ (Excellent) of QBE Reinsurance Corporation, QBE Insurance Corporation, both domiciled in Harrisburg, Pennsylvania, QBE Specialty Insurance Company in Bismarck, North Dakota, NAU Country Insurance Company, in Ramsey, Minnesota and Praetorian Insurance Company, also in Harrisburg, which became members of the QBENA Group pooling agreement retroactive to January 1, 2012.
Best said that as a result of the additional companies becoming members of the QBENA Group pooling agreement, the resulting Financial Size Category for the Group is XV. The outlook for all of the ratings is stable.
All of the companies detailed above are “key parts” of the ultimate parent, Australia’s QBE Insurance Group Limited, and they form the core of the expansion of its operations in the United States.
“QBENA Group is a significant contributor to the worldwide operations of QBE, one of the largest global insurance organizations, representing approximately 37 percent of QBE’s global business,” said Best.
As a result, Best said the “rating actions consider the explicit and implicit support provided by QBE and its affiliates, including QBE’s captive reinsurance affiliate, Equator Reinsurances Limited (Equator Re).
“The ratings reflect QBENA Group’s historically favorable operating performance, solid risk-adjusted capitalization, highly diversified business portfolio developed through a multi-faceted distribution platform and its strategic importance to the global marketing strategy of QBE as a material contributor to QBE’s overall results. The QBENA Group’s operations also benefit from being integrated into the highly developed enterprise risk management system of QBE.
“The profitable results reflect the effectiveness of the group’s niche and/or regional focus and the benefits of a highly diversified portfolio, from both the geographical and line of business perspectives. Furthermore, the strategic importance of QBENA Group continues to expand as the operating companies, particularly those most recently acquired, become more integrated within its infrastructure as QBE continues its worldwide expansion. QBE has demonstrated an historical track record of supporting its operations throughout the world, which is a positive rating attribute.”
As a partial offsetting factor Best cited the “QBENA Group’s low operating returns;” however, Best added that those “returns are largely impacted by the conservative makeup of its investment portfolio, predominantly dedicated to high quality fixed income holdings that are generating low earnings due to the depressed, prevailing interest rate environment.
“Other offsetting rating factors include the execution risks associated with its growth by acquisition strategy, which include but are not limited to, integration and cultural issues, agency acceptance and the potential for unfavorable legacy issues to emerge. In 2011, QBE completed acquisitions of the U.S. property/casualty businesses of RenaissanceRe Holdings Ltd. and the Balboa Insurance Company. The acquired businesses continue to be folded into the QBENA Group portfolio in 2012. Notwithstanding these concerns, QBE does have a successful track record of profitably integrating acquisitions.
“Potential upward movement in QBENA Group’s ratings or a favorable change in its rating outlook is unlikely at this time. Any upward revision in the ratings would be largely dependent on the ratings of QBE, based on the group’s current status within QBE’s group of companies.
“Factors that may lead to negative rating actions would include any changes to QBE’s worldwide strategic plan that would alter its expansion in the United States, any material deterioration in the U.S. subsidiaries’ risk-adjusted capitalization and/or operating results, any negative rating actions taken on QBE and its affiliates and/or lessening of support (implied or explicit) provided to the U.S. insurance subsidiaries by QBE and Equator Re, which plays a key role as a material quota share reinsurance provider to QBENA Group.”
Best noted that it does not issue ratings for Equator Re; “however, it is reviewed and evaluated by A.M. Best separately and as part of the QBE ratings evaluation process. Any material shortfalls in Equator Re’s risk-adjusted capital also could have a consequential impact on the members of QBENA Group.”
Best summarized the companies affected by its rating actions as follows:
The FSR of ‘A’ (Excellent) and ICRs of “a+” have been affirmed for the following pooled and reinsured members of QBE North America Insurance Group:
— Blue Ridge Indemnity Company
— General Casualty Company of Wisconsin
— General Casualty Insurance Company
— Hoosier Insurance Company
— Lantana Insurance Ltd.
— National Farmers Union Property and Casualty Company
— North Pointe Insurance Company
— Regent Insurance Company
— Southern Fire & Casualty Company
— Southern Guaranty Insurance Company
— Southern Pilot Insurance Company
— Stonington Insurance Company
— Unigard Insurance Company
— Unigard Indemnity Company
Source: A.M. Best