Best Affirms QBE’s Key Operating Subsidiaries ‘A’ Ratings

January 12, 2006

A.M. Best Co. announced that it has affirmed the financial strength rating of “A” (Excellent) and issuer credit rating (ICR) of “a+” of the following subsidiaries of Australian insurer QBE: QBE Insurance (International) Limited (QIL) (Australia) and QBE Reinsurance (Europe) Limited (QBE Re) (Ireland).

“These companies are regarded as key operating subsidiaries of QBE Insurance Group Limited (QBE) (Australia), the non-operating holding company of the QBE group of companies,” said Best. It also affirmed the ICR of “bbb+” of QBE.

Concerning QBE’s debt, Best said it has “affirmed the rating of “bbb” on the $ 250 million 5.65 percent subordinated notes due 2023 and the rating of “bbb+” on the GBP 175 million 5.625 percent senior notes due 2009, both issued by QBE Insurance Group Limited.” It also “affirmed the rating of “bbb+” on the $ 375 million 20-year zero coupon senior convertible securities due 2024 issued by QBE Funding Trust III Ltd. and guaranteed by QBE. The outlook for all ratings is stable.”

Best said it “considers QBE’s consolidated risk-adjusted capitalization to be excellent and likely to remain supportive (through solid retained earnings) of anticipated net premium growth of approximately 10 percent-15 percent between 2004 and 2006.”

The rating agency also indicated that it “believes consolidated earnings will remain strong with a return on capital and surplus likely to be in the region of 15 percent at year-end 2005 (compared with 24.1 percent in 2004 [restated]). Overall profitability is likely to be supported by strong underwriting performance in each of its main operating divisions with a combined ratio likely to be marginally below 100 percent after allowing for U.S. hurricane losses and stable investment returns of 3.5 percent in 2005 and 2006.

“QBE is a well diversified commercial lines insurer (accounting for two-thirds of overall premium income) operating on a global basis across its five main markets: the Americas, Asia Pacific, Europe, Lloyd’s and the United Kingdom. The company is a market leader for the majority of classes written, with projected gross premium growth into 2006 to approximately AUD 10.5 billion ($7.9 billion) (up from AUD 8.8 billion [$6.6 billion] in 2004) likely to emanate largely through acquisitions rather than rating conditions, which remain favorable despite weakening for certain lines of business.”

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