Many insurers were impacted by the COVID-19 pandemic, which is why it's not surprising that Fitch Ratings revised its outlook on major insurer QBE Insurance Group to negative due to uncertainty over its profit recovery.
Fitch Ratings has confirmed that it updated its outlook on all the ratings of QBE and its subsidiaries from stable to negative, which reflects the drop in QBE's financial performance and earnings in 2020.
The outlook follows QBE's announcement of significant deterioration in its 2020 financial performance. Its management expects a statutory net after-tax loss of around US$1.5 billion (approx. AU$1.93 billion) for 2020 compared to a net profit of US$547 million in 2019.
According to Fitch, the expected 2020 statutory loss results from goodwill impairment and tax asset write-downs totalling US$520 million, a COVID-19 impact of US$470 million, US$360 million in adverse prior accident-year claims development, and catastrophe losses of US$130 million. The insurer's management expects additional pandemic-related losses of around US$130 million in 2021.
Despite the losses, Fitch has affirmed QBE's Long-Term Issuer Default Rating (IDR) at “A-” and the Insurer Financial Strength (IFS) Ratings of the core subsidiaries at “A+” (Strong).
“Fitch's ‘Strong’ view of QBE's capitalisation and leverage reflects our expectation the insurer's capitalisation metrics will remain solid despite the statutory loss,” Fitch said.
The agency added: “Fitch ranks QBE's business profile as ‘Favourable’ against that of all other Australian insurers due to its ‘Most Favourable’ competitive positioning, ‘Moderate’ business risk profile, and ‘Favourable’ diversification. The insurer has a large operating scale and diversified international operations. Stronger underwriting performance in its European, Australian, and New Zealand businesses has helped offset weaker performance in its North American operations in recent years.”
