OREANDA-NEWS. This announcement replaces the version published on 5 August 2016 to add the following information that was missing: Rating actions on QBE Insurance (Europe) Limited, QBE Re (Europe) Limited, QBE Hongkong & Shanghai Insurance Limited, QBE Reinsurance Corporation, and Equator Reinsurances Limited; and the contacts of the analysts and committee chairperson.

Fitch Ratings has affirmed QBE Insurance Group Limited's (QBE) Long-Term Issuer Default Rating (IDR) at 'A-' and its subsidiaries' Insurer Financial Strength (IFS) ratings at 'A+'. The Outlook is Stable. In addition, Fitch has chosen to withdraw the ratings of QBE Insurance (International) Ltd. and QBE Insurance (Australia) Limited for commercial reasons. A full list of rating actions is at the end of this commentary.

The affirmation of QBE's ratings reflect its solid capital ratios, adequate financial leverage ratios, historically strong underwriting performance - which is supported by sound aggregate management and a comprehensive reinsurance programme - and a low-risk investment portfolio. The group's operational efficiency programme and other remediation efforts support future operating performance, reserve adequacy has improved and weak interest-coverage ratios continue to strengthen.


We assess QBE's capital ratios as strong based on coverage of regulatory minimum requirements and results from our proprietary risk-based capital model, Prism. Increased retained earnings and disposals in 2015 were partly offset by higher asset-risk charges, following increased exposure to 'riskier' investments and a weaker Australian dollar. Coverage of the regulatory prescribed capital amount increased to 1.72x by end-2015, which compares well against Fitch's median criteria guideline of 1.60x for a 'AA' IFS rating.

Financial flexibility has improved on a stronger operating performance and lower leverage. We will continue to review QBE's financial leverage ratios, including and excluding goodwill, until margins and profitability strengthen further but place more emphasis on the ratio including goodwill. QBE's goodwill as a percentage of equity had declined to 30% by end-2015, from a peak of 45% in 2011. QBE's financial leverage, as measured by Fitch's adjusted debt/total capital ratio, was 24% at end-2015 and at the low-end of our median criteria guidelines for an 'AA' rated insurer. Excluding goodwill, the ratio was 30%, just below Fitch's 'A' median criteria guideline.

QBE's reported combined ratio was 94.9% in 2015 (94.0% excluding non-core disposals) and averaged 96.5% in the five years to end-2015. This is at the low-end of the insurer's peer group, but stronger than Fitch's median criteria guideline of 103% for an 'A' rated insurer. We see stronger combined ratios as critical, as significant levels of intangibles and a low-yielding investment portfolio constrain earnings.

Fitch deems average interest-coverage of 5x over the six years to end-2015 as weak, based on our median criteria guidelines; although coverage is consistent with some 'A+' rated peers. Moreover, coverage improved to 5x in 2015, from a low of 3x in 2013, and we expect further strengthening in 2016.

QBE's risky asset ratio, which measures equities, non-investment grade bonds and affiliate investments/shareholders equity, was low at 22% at end-2015 (end-2014: 20%), despite adopting a higher investment risk appetite in 2014. We expect the group's investment portfolio to remain conservatively positioned relative to peers, with cash and fixed-income securities making up 91% of QBE's portfolio at end-2015.

Reserve risk is an important credit factor due to the nature of the group's profile and high reserve leverage. Our neutral assessment of the company's reserve adequacy results from its large level of risk margins held in claims reserves. We calculate QBE's claims reserve adequacy ratio (carried claims reserves/estimated reserving mid-points) at 103% at end-2015.


Fitch does not expect further large operational problems, due to the significant remediation actions. However, additional goodwill impairments and deteriorating financial flexibility; weakness in the franchise leading to loss of market share; and persistent interest-coverage ratios below that of similarly rated peers could lead to a downgrade. This would be evident from sustained interest-coverage ratios below 7x, combined ratios greater than 100% and the group's prescribed capital amount coverage falling below 150%.

A rating upgrade could result if current strategic initiatives translate into financial performance and credit metrics consistent with 'AA' rated peers. We would expect the group to display leading positions in all major markets in which it operates.

The full list of rating actions is as follows:

QBE Insurance Group Limited (QBE):

Long-Term IDR affirmed at 'A-'; Outlook Stable

USD600m senior unsecured debt affirmed at 'BBB+'

GBP300m perpetual preferred securities affirmed at 'BBB-'

USD1bn subordinated debt affirmed at 'BBB'

GBP325m subordinated debt affirmed at 'BBB'

USD700m subordinated debt affirmed at 'BBB'

USD300m subordinated debt affirmed at 'BBB'

AUD200m subordinated debt affirmed at 'BBB'

GBP327m subordinated debt affirmed at 'BBB'

USD524m subordinated debt affirmed at 'BBB'

QBE Insurance (Australia) Limited:

IFS rating affirmed at 'A+'; Outlook Stable; withdrawn

QBE Insurance (International) Ltd.:

IFS rating affirmed at 'A+'; Outlook Stable; withdrawn

QBE Insurance Corporation:

IFS rating affirmed at 'A+'; Outlook Stable

QBE Insurance (Europe) Limited:

IFS rating affirmed at 'A+'; Outlook Stable

QBE Re (Europe) Limited:

IFS rating affirmed at 'A+'; Outlook Stable

QBE Hongkong & Shanghai Insurance Limited:

IFS rating affirmed at 'A+'; Outlook Stable

QBE Reinsurance Corporation:

IFS rating affirmed at 'A+'; Outlook Stable

Equator Reinsurances Limited:

IFS rating affirmed at 'A+'; Outlook Stable