Best Affirms QBE and Subs Ratings; Outlook Stable

October 12, 2011

A.M. Best Europe – Rating Services Limited has affirmed the financial strength ratings (FSR) of ‘A’ (Excellent) and the issuer credit ratings (ICR) of “a+” of UK-based QBE Insurance (Europe) Limited, QBE Insurance (International) Limited (Australia) and QBE Reinsurance (Europe) Limited (Ireland).

These companies are key operating subsidiaries of Australia’s QBE Insurance Group Limited, the non-operating holding company of the QBE group of companies. Best has also affirmed the ICR of “bbb+” and all debt ratings of QBE. The outlook for all of the ratings is stable

Best said: “QBE’s consolidated risk-adjusted capitalization is expected to remain at a sufficiently strong level to support the group’s current ratings in 2011, despite growth from acquisitions and exposure to large catastrophe losses. The group benefits from strong financial flexibility and in May 2011 issued $1 billion and £325 million [$512.5 million] of subordinated debt with a 30-year maturity.”

Best also indicated that it expects QBE “to produce a strong consolidated pre-tax profit in 2011 (2010: $1.6 billion). A combined ratio of 90 percent-95 percent is likely, despite exposure to losses from earthquakes, tornadoes, storms and flooding.” For the first half of 2011, QBE reported net claims of $1.08 billion in catastrophe and large risk losses.

“A substantial allowance for further catastrophe and large risk losses in the remainder of the year is included in the combined ratio forecast,” Best noted. “The group has a track record of producing stable and strong technical results (including in years with heavy catastrophe losses), in part reflecting its well diversified portfolio.

“Investment income is expected to contribute positively to the group’s results. QBE’s investment portfolio primarily consists of fixed income securities and cash.”

Best also pointed out that QBE’s “portfolio of insurance and reinsurance property/casualty business is well-diversified by both product and territory. The group maintains a robust business profile, largely derived from its presence in the Australian, London and Lloyd’s markets, and continues to strengthen its profile in its other core regions (United States, Continental Europe and Asia-Pacific) through acquisition-based growth.

“The group continues to purchase insurers and managing agents, which enhances its access to business in local markets. Organic growth overall is likely to be limited until market conditions improve in its main business lines.”

The following debt ratings have been affirmed:
QBE Insurance Group Limited—
— “bbb+” on $211 million 9.75 percent senior unsecured fixed rate notes, due 2014
— “bbb+” on £191 million [$301.2 million] 10.00 percent senior unsecured fixed rate notes, due
2014
— “bbb+” on £550 million [$867.5 million) 6.125 percent senior unsecured fixed rate notes, due
2015
— “bbb+” on $853 million 2.50 percent senior convertible securities, due 2030
— “bbb” on $250 million 5.647 percent subordinated notes, due 2023
— “bbb-” on $550 million 6.797 percent perpetual preferred securities (issued by QBE Capital Funding II L.P. (Jersey) and guaranteed by QBE)
— “bbb-” on £300 million [$473.2 million] 6.857 percent perpetual preferred securities (issued by QBE Capital Funding L.P. (Jersey) and guaranteed by QBE)

Source: A.M. Best

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