Best Revises ICR Outlook to Negative for QBE Group and Subs; Affirms Ratings

November 16, 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, QBE Re (Europe) Limited, and Australia-based QBE Insurance (International) Limited, which Best described as 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, but has revised its outlook for all of the ICRs and debt ratings to negative from stable. The outlook for allof the FSRs remains stable. Best took the same actions in a separate report on QBE’s North American subsidiaries.

The revised outlook “follows the publication on 12 November 2012 of QBE’s market update on its 2012 forecast results,” Best explained. “A preliminary estimate of losses from Hurricane Sandy of between US$350 million and US$450 million, as well as an increase in projected prior year reserve strengthening for the full year, has led the group to revise its projected insurance profit margin for 2012 to 8 percent from 12 percent. As a result, the previously anticipated recovery in consolidated risk-adjusted capitalization to a strong level, following deterioration in 2011, is not expected to materialize by year-end 2012.”

Best added that it would “closely monitor the development in the group’s risk-adjusted capitalization and performance over the next year. If consolidated risk-adjusted capitalization recovers to the level previously expected by A.M. Best during 2013, the negative outlook could revert back to stable. The absence of an improvement in consolidated risk-adjusted capitalization or a material decline in operating performance could lead to negative rating action.”

Best summarized the debt ratings affected by its action as follows:
QBE Insurance Group Limited—
– “bbb+” on US$ 211 million 9.75 percent senior unsecured fixed rate notes, due 2014
– “bbb+” on £191 million [US$303 million] 10.00 percent senior unsecured fixed rate notes, due 2014
– “bbb+” on £550 million [US$872 million] 6.125 percent senior unsecured fixed rate notes, due 2015
– “bbb+” on US$ 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$523.4 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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