A.M. Best Affirms Ratings of QBE Insurance Group Limited

LONDON--(BUSINESS WIRE)-- 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 QBE Insurance (Europe) Limited (United Kingdom) and 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. A.M. Best also has affirmed the ICR of “bbb+” and all debt ratings of QBE. The outlook for all ratings is stable. (See below for a detailed list of the debt ratings.)

At the same time, A.M. Best has assigned an FSR of A (Excellent) and an ICR of “a+” to QBE Re (Europe) Limited (United Kingdom) (QBE Re). The assigned outlook is stable.

Additionally, A.M. Best has withdrawn the FSR of A (Excellent) and ICR of “a+” of QBE Reinsurance (Europe) Limited (Ireland). On 30 September 2012, QBE Reinsurance (Europe) Limited and 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 capitalisation and good prospective operating performance. 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 capitalisation 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. The anticipated recovery reflects a capital raising of around USD 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.

QBE is expected to produce a combined ratio of around 92% 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 capitalisation could put positive pressure on the ratings of QBE and its rated non-US operating entities. Deterioration in risk-adjusted capitalisation or a material decline in operating performance could put negative pressure on the ratings.

The following debt ratings have been affirmed:

QBE Insurance Group Limited—

- “bbb+” on USD 211 million 9.75% senior unsecured fixed rate notes, due 2014
- “bbb+” on GBP 191 million 10.00% senior unsecured fixed rate notes, due 2014
- “bbb+” on GBP 550 million 6.125% senior unsecured fixed rate notes, due 2015
- “bbb+” on USD 853 million 2.50% senior convertible securities, due 2030
- “bbb” on USD 250 million 5.647% subordinated notes, due 2023
- “bbb-” on USD 550 million 6.797% perpetual preferred securities (issued by QBE Capital Funding II L.P. (Jersey) and guaranteed by QBE)
- “bbb-” on GBP 300 million 6.857% perpetual preferred securities (issued by QBE Capital Funding L.P. (Jersey) and guaranteed by QBE)

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilised include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding Universal BCAR”; “Rating Members of Insurance Groups”; “Catastrophe Analysis in A.M. Best Ratings”; “Equity Credit for Hybrid Securities”; and “Insurance Holding Company and Debt Ratings”. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe - Rating Services Limited Supplementary Disclosure.

A.M. Best Europe – Rating Services Limited is a subsidiary of A.M. Best Company. Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

A.M. Best
Mathilde Jakobsen, +(44) 20 7397 0266
Senior Financial Analyst
Catherine Thomas, +(44) 20 7397 0281
Director, Analytics
Rachelle Morrow, +(1) 908 439 2200, ext. 5378
Senior Manager, Public Relations
Jim Peavy, +(1) 908 439 2200, ext. 5644
Assistant Vice President, Public Relations

Source: A.M. Best Europe