Fitch Ratings has given a “BBB” rating to QBE Insurance Group Limited’s $250 million Tier 2 subordinated notes.
Issued under the group’s note issuance program, the securities are structured as unsecured and subordinated obligations.
The notes, which are set to mature in 12 years, include a callable option exercisable after seven years, subject to approval from the Australian Prudential Regulation Authority (APRA). The floating interest rate on the securities is tied to the three-month bank bill swap rate plus 1.8%.
QBE intends to use the proceeds from the issuance for general corporate purposes.
The two-notch differential from QBE’s “A-” issuer default rating (IDR) reflects expectations of “poor” recovery levels in a default scenario, consistent with Fitch’s criteria for subordinated debt issued by holding companies.
The “poor” recovery notching considers that subordinated debt ranks below senior creditors but ahead of equity holders and Additional Tier 1 securities.
The securities also carry a “minimal” risk of non-performance, as interest payments cannot be deferred at QBE’s discretion. However, the notes may convert to equity or be written off, in part or in full, if APRA determines that QBE would become non-viable without conversion or public sector support.
Fitch views the likelihood of this non-viability trigger being activated as low, barring significant financial distress.
APRA has approved the securities as eligible for Tier 2 capital under regulatory standards.
Fitch said it applied full equity credit to the securities under its Prism Global model, while treating them as debt instruments for financial leverage calculations. Following the issuance, QBE’s financial leverage ratio is expected to increase slightly, from 21% to approximately 22%.
Fitch maintains a positive outlook on QBE’s overall ratings, reflecting the insurer’s improving financial performance and solid capitalisation. These developments align with the benchmarks required for an “A” insurer financial strength (IFS) rating.
The agency attributes the group’s progress to stronger underwriting results, driven by premium rate increases and risk management efforts aimed at reducing earnings volatility.
Fitch also recognises QBE’s position within the non-life insurance sector, describing its company profile as robust and supportive of its ratings.
The subordinated notes’ rating is closely tied to QBE’s IDR. Factors that could lead to a downgrade include:
Conversely, Fitch has indicated that continued financial improvement, including a return on equity above 10% and a combined ratio below 94%, could support an upgrade.
Fitch reported no material environmental, social, or governance (ESG) risks affecting QBE’s credit profile. These factors are considered neutral in the rating process.
The rating follows Fitch’s Nov. 7 decision to revise QBE’s outlook from “stable” to “positive.” At that time, Fitch reaffirmed the company’s long-term IDR at “A-” and assigned an “A+” IFS rating to its main subsidiaries, citing strengthened capitalisation and underwriting performance as key drivers of the improved outlook.
