Best Announces Rating Actions on QBE Group

September 21, 2004

A.M. Best Co. announced that it has assigned an issuer credit rating (ICR) of “bbb+” to Australia’s QBE Insurance Group Limited, the non-operating holding company of the QBE group of companies.

Best also said it has assigned a financial strength rating of “A” (Excellent) to Australian subsidiary QBE Insurance (International) Limited (QIL) (Australia) and has upgraded the financial strength rating of QBE Reinsurance (Europe) Limited (QBE Re) (Ireland) to “A” (Excellent) from “A” (Excellent). Best has also assigned an ICR of “a+” to both of these companies, which are regarded by A.M. Best as core operating subsidiaries of QBE.

The outlook for all of the ratings is stable.

“The ICRs of QIL and QBE Re reflect A.M. Best’s opinion, expressed in the credit market scale, as to the overall ability of these entities to meet their senior most obligations, which are insurance policies; hence both ratings (ICR and financial strength) are at the same level,” said the announcement. “QBE is a non-operating holding company, and the level of its ICR illustrates the principle of standard notching from the rating of its principal operating companies (QIL and QBE Re).

“QBE’s ratings reflect its position as a well diversified commercial lines insurer with operations in the key global insurance markets (Americas, Asia Pacific, Australia, Europe and Lloyd’s).”

Best said it “believes QBE will likely develop its business position in its core markets during 2004 and 2005 through possible future acquisition of insurers, underwriting teams and portfolios. This, combined with organic growth, will likely result in a 25 percent growth in premium income between 2003 – 2005 (2003: AUD 8.4 billion [USD 6.3 billion]).”

The report added that “QBE remains a market leader for most of the business it writes (leading approximately 80 percent by premium volume), and A.M. Best believes this is likely to continue. Prospectively, QBE is likely to produce solid consolidated earnings with a return on capital and surplus likely to be in excess of 15 percent in 2004, driven by solid underwriting results across each of its core regions (a projected combined ratio of just below 95 percent in 2004, excluding the impact of any major catastrophes in the second half of the year) and stable investment returns (including realized and unrealized gains) of 3 percent – 3.5 percent.”

Best said it is continuing discussions with QBE management concerning “the impact of catastrophes in the second half of 2004 on QBE.” The rating agency “believes QBE’s current and prospective consolidated risk-adjusted capital base is excellent,” and that “current and prospective financial earnings are likely to enable QBE to raise additional capital and issue debt should the need arise (AUD 1.3 billion [USD 909 million] raised since 2001), enhancing the company’s financial flexibility.”

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