S&P Puts QBE Hongkong on CreditWatch after Guarantee Withdrawn

May 11, 2006

Standard & Poor’s Ratings Services announced from its Melbourne office that it has placed its “A+” insurer financial strength rating on Hong Kong-based general insurer QBE Hongkong & Shanghai Insurance Ltd. on CreditWatch with negative implications. S&P said it had taken the action “in response to a notice from Ireland-based reinsurer QBE Reinsurance (Europe) Ltd. (QBE Re Europe; A+/Stable/–) that its guarantee in favor of QBE Hongkong Shanghai’s policyholders will be withdrawn on May 15, 2006.”

“When QBE Re Europe’s guarantee is withdrawn on May 15, the rating on QBE Hongkong Shanghai will be lowered to A/Stable/–,” stated S&P credit analyst Kate Thomson. “The changed rating on QBE Hongkong Shanghai will reflect the entity’s stand-alone financial strength, as well as the insurer’s strategic importance to Australia-based group, QBE Insurance Group Ltd. (QBE group; core operating entities rated A+/Stable/–).”

S&P noted that “under the terms of the guarantee, holders of QBE Hongkong Shanghai policies issued before May 15, 2006, will continue to enjoy the benefit of the guarantee from QBE Re Europe.”

S&P also affirmed its “A+” insurer financial strength ratings on QBE Insurance Corp. and Equator Reinsurances Ltd., “reflecting the entities’ core statuses in the QBE group. QBE group has also notified its intention to withdraw the policyholder guarantees from QBE Re Europe in favor of policyholders of Equator Reinsurances Ltd. and QBE Insurance Corp. The ratings on the latter two entities will not be affected by the guarantee withdrawal, as these subsidiaries are considered core under Standard & Poor’s group rating methodology. The QBE group has indicated that the withdrawal of the guarantees is consistent with current regulatory practices globally to remove cross guarantees between licensed insurance subsidiaries.”

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