Best Affirms QBE Insurance Group ‘A’ Ratings; Outlook Stable

October 1, 2012

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and the issuer credit ratings (ICR) of “a+” of UK-based QBE Insurance (Europe) Limited and Australia-based QBE Insurance (International) Limited, the key operating subsidiaries of Australia’s QBE Insurance Group Limited, the non-operating holding company of the QBE group of companies.

Best also affirmed the ICR of “bbb+” and all debt ratings of QBE. The outlook for all ratings is stable. In addition Best has assigned an FSR of ‘A’ (Excellent) and an ICR of “a+” to UK-based QBE Re (Europe) Limited, also with a stable outlook.

Best explained that it has withdrawn the FSR of ‘A’ (Excellent) and ICR of “a+” of QBE Reinsurance (Europe) Limited, based in Ireland, in recognition of the fact that on September 30, 2012, the company, as well as Secura NV, were merged into QBE Re (Europe) Limited. Both entities ceased to exist as a result of this merger.

The ratings of QBE Re (Europe) Limited reflect its “good prospective risk-adjusted capitalization and good prospective operating performance, said Best, adding that the “company will play a key role in the QBE group as its non-Lloyd’s vehicle for writing reinsurance business placed in European markets.

“QBE’s consolidated risk-adjusted capitalization is expected to recover to a strong level at year-end 2012, following deterioration in 2011 due to growth from acquisitions and lower than expected pre-tax earnings,” Best’s report continued. “The anticipated recovery reflects a capital raising of around US$600 million, a reduction in the final dividend for 2011 and good expected net income for 2012. The group benefits from strong financial flexibility, which was demonstrated by debt raising in 2011 and equity raising in 2012.”

Best also observed the “QBE is expected to produce a combined ratio of around 92 percent for 2012. This forecast includes a substantial allowance for catastrophe and large risk losses for the remainder of the year. 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 highly rated fixed income securities and cash.

“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 and London markets, and continues to strengthen its profile in its other core regions (United States, Continental Europe and Asia-Pacific). The group has followed a strategy of acquisition-based growth in recent years, but has announced that no major acquisition activity is planned for the second half of 2012.

“A sustained improvement in risk-adjusted capitalization could put positive pressure on the ratings of QBE and its rated non-US operating entities. Deterioration in risk-adjusted capitalization or a material decline in operating performance could put negative pressure on the ratings.”

Best also noted that the following debt ratings have been affirmed:
QBE Insurance Group Limited—
– “bbb+” on US$211 million 9.75 percent senior unsecured fixed rate notes, due
2014
– “bbb+” on £191 million [US$310 million] 10.00 percent senior unsecured fixed rate notes, due
2014
– “bbb+” on £550 million [US$810 million] 6.125 percent senior unsecured fixed rate notes, due
2015
– “bbb+” on US$853 million 2.50 percent senior convertible securities, due 2030
– “bbb” on US$250 million 5.647 percent subordinated notes, due 2023
– “bbb-” on US$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 [US$486 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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