Best Affirms ‘A’ Ratings of QBE Insurance Group and Subsidiaries

A.M. Best Europe – Rating Services Limited has affirmed the financial strength ratings of ‘A’ (Excellent) and the issuer credit ratings (ICR) of “a+” of UK-based QBE Insurance (Europe) Limited, Australia-based QBE Insurance (International) Limited and QBE Reinsurance (Europe) Limited, which is domiciled in Ireland. They are 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 of QBE’s debt ratings. The outlook for all of the ratings is stable.

“QBE’s consolidated risk-adjusted capitalization is expected to remain at a sufficiently strong level to support its operations in 2010, although the margin available to absorb future growth is likely to remain at a lower level than in previous years,” Best stated. “Loss exposure to the major events of the year is expected to be comfortably absorbed by the group.

“In the first half of 2010, QBE’s catastrophe and large loss exposure represented 9.3 percent of its net premium revenue compared to 7.2 percent in the previous year. QBE continues to demonstrate strong financial flexibility. In 2010, the group has raised a total of $US1.353 billion, which was partly utilized to support its growth from acquisitions and to repay some of its existing debt.”

In addition Best noted that a “strong consolidated pre-tax profit is anticipated in 2010 (2009: US$1.891 billion), underpinned by a combined ratio similar to the 89 percent reported in the previous year (subject to normal catastrophe activity in the remainder of the year).”

“Results are likely to be supported by an improvement in the attritional loss ratio, reflecting the corrective action taken by the group in response to the poor performance of certain classes of business in 2009.”

Best also said that claims related to the global financial crisis are “expected to be significantly lower than in 2008 and 2009. The low interest rate environment is expected to affect underwriting earnings in 2010, owing to the lower risk free discount rates applied to outstanding claims, and lower investment earnings from cash and fixed interest investments.

“Results are also likely to be affected by the volatile performance of QBE’s small equity portfolio. As at June 2010, QBE reported equity losses (realized and unrealized) of US$228 million, compared to a loss of US$102 million reported for the same period in 2009.”

Best described QBE’s business profile as “robust, largely derived from its presence in the Australian, London and Lloyd’s markets, writing a well diversified portfolio of business by product and territory. The group continues to strengthen its profile in its other core regions (United States, Continental Europe and Asia-Pacific) through acquisition-based growth. The purchase of insurers and managing agents has increased QBE’s access to business in local markets and its control of its own distribution channels.

“The acquisition of the European property/casualty reinsurer, Secura N.V. (to be completed in the fourth quarter of 2010), is expected to improve QBE’s profile in Europe, owing to the strong brand of Secura N.V. in the Benelux and French regions. Organic growth for QBE as a whole is likely to be limited in the near term, owing to the challenging market conditions for most of its business lines.”

Source: A.M. Best