S&P Affirms QBE and Subs Ratings

June 4, 2007

Standard & Poor’s Ratings Services has affirmed its “A+” insurer financial strength and counterparty credit ratings on the core operating entities of Australia’s QBE Group. S&P also affirmed its “A-” insurer financial strength and counterparty credit ratings on the group’s holding company, QBE Insurance Group Ltd. The outlook on all the core entities is stable.

“The ratings on the core operating entities reflect QBE’s track record of solid underwriting and operating performance; well-diversified business profile; strong competitive position, and underwriting and reserving practices; and supportive capitalization for the rating level,” said S&P.

However, the rating agency indicated that QBE’s “limited market influence outside Australia, reasonable reliance on third-party reinsurance, and involvement in some high-risk lines of business,” should be considered as “moderating” the ratings.

S&P credit analyst Derryl D’silva noted QBE’s “globally diverse business platform that ensures a good level of stability in its earnings,” as well as the Group’s “solid performance in fiscal 2006,” which has strengthened reserves and capital levels. This in turn has enhanced QBE’s “ability to fund further acquisitions.”

S&P also noted the recent closure of two important acquisitions in the U.S. (See related article in National), calling it “another step in increasing revenue and geographic diversity, and also in expanding the size and distribution of its U.S. operations.”

QBE’s ratings could move up, S&P indicated, due to the “strengthening in its competitive position in key offshore markets, Europe and the Americas, combined with a higher level of risk-based group capitalization. Equally important would be the group’s ability to maintain its strong risk management with the increased diversity of its operations.

“However, if QBE were unable to complete successful integration of these U.S.-based acquisitions in a timely manner, this could place pressure on the rating. Although perceived as unlikely to occur, a failure to maintain good underwriting profitability, a weakening in the group’s overall competitive position, or a material operating risk issue could also weaken the rating.”

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