Fitch revises outlook on QBE & subsidiaries to positive

Fitch Ratings has revised the outlook on all the ratings of Australia-based QBE Insurance Group Limited and its subsidiaries to Positive from Stable, while affirming QBE’s Long-Term Issuer Default Rating at ‘A-‘ and the Insurer Financial Strength (IFS) Ratings of the core subsidiaries’ at ‘A+’ (Strong).

Analysts confirmed that the positive outlook reflects QBE’s improving financial performance and solid capitalisation metrics, which compare favourably against Fitch’s criteria guidelines for the ‘A’ IFS Rating category.

It’s worth highlighting that QBE’s underwriting performance has seen a notable improvement throughout the past few years, which has been supported by continued premium rate increases and various underwriting efforts across the group to reduce earnings volatility.

“We expect the group’s reserve risk volatility to ease following recent reserve transactions, which reinsured up to USD3.5 billion of long-tail reserves in its North American and international businesses. QBE’s reported net profit doubled to USD806 million in 1H24, from USD404 million in 1H23, on a stronger insurance service result that reflected lower catastrophe costs and more stable reserve development. All segments recorded an underwriting surplus, including the North American business, which had previously reported weak results,” Fitch commented.

Moreover, Fitch also noted that it ranks QBE’s company profile as ‘Favourable’ as a result of a ‘Favourable’ business profile and ‘Neutral’ corporate governance compared with that of other Australian insurers.

Stronger underwriting performance seen within the firm’s European and Australian businesses has offset weaker performance in North America in recent years, Fitch added.

Readers will remember that in June, QBE announced that it will close its North American middle-market business, while it shifts its attention towards businesses that have more meaningful market positions, relevance and scale.

Moving forward, Fitch also highlighted how QBE has demonstrated a “strong ability” to access both debt and equity capital markets.

“Institutional and retail investors have supported QBE’s various capital initiatives and we believe sustained robust operational performance will underpin the insurer’s financial flexibility,” Fitch added.

Furthermore, Fitch named factors that could individually, or collectively lead to a negative rating action/downgrade for QBE in the future. These include, a sustained deterioration in financial performance, with return on equity consistently below 6% and the Fitch-calculated combined ratio above 102%, as well as a significant worsening in the company profile, evident from a loss of market share and franchise.

However, the agency stated that sustained improvement in group financial fundamentals, with return on equity consistently above 10% and the Fitch-calculated combined ratio below 94%, could also potentially drive a positive rating action/upgrade in the future.

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