QBE Insurance Group Limited has secured a “BBB” rating from Fitch Ratings for its recent issuance of US$500 million Tier 2 subordinated notes, which will contribute to the company’s regulatory capital base.
The securities were issued under QBE’s established note issuance program and are designated as direct, unsecured, and subordinated liabilities of the company.
The notes mature in 10.5 years and include an optional redemption feature exercisable after 5.5 years, pending approval from the Australian Prudential Regulation Authority (APRA).
The fixed interest rate on the securities is 5.834% until the initial reset date on Oct. 3, 2030. After that, the coupon will adjust in line with the five-year US Treasury yield plus 1.697%.
QBE has stated that the capital raised will support general corporate activities across its business lines.
Fitch said its rating reflects the subordinated nature of the debt, placing it two notches below QBE’s Issuer Default Rating (IDR) of “A-.”
The agency attributed the notching to assumptions regarding lower recovery prospects in the event of insolvency. As subordinated instruments, these notes would rank below senior debt but ahead of ordinary equity and Additional Tier 1 securities if the company were to be wound up.
The instruments do not provide QBE with the discretion to defer interest payments. In circumstances where APRA considers QBE to be non-viable, the notes may be either partially or fully converted into equity, or written off, depending on the situation. Fitch noted it considers such regulatory intervention unlikely unless QBE experiences sustained financial distress.
APRA has approved the securities as eligible Tier 2 capital under its regulatory standards. Fitch’s modelling grants the notes full equity credit in its Prism capital model due to the override from regulatory recognition.
However, for the purposes of financial leverage calculations, the notes are classified as debt. Fitch projects QBE’s financial leverage ratio to increase from 20% at the end of 2024 to 23% on a pro forma basis post-issuance.
The outlook on QBE’s rating remains positive, underpinned by improved financial performance and strong capital metrics.
Fitch highlighted the insurer’s enhanced underwriting results over the past three years, which have been supported by rate momentum and internal measures aimed at reducing earnings volatility.
The outlook reflects QBE’s full-year 2024 results, reporting a net profit of US$1.779 billion, an increase from US$1.355 billion in 2023. Gross written premium rose to US$22.395 billion.
The company also recorded a combined operating ratio of 93.1%, with a 17.7% net commission ratio and a 12.2% expense ratio. Net investment income was reported at US$1.488 billion.
QBE declared a final dividend of 63 Australian cents per share for the 2024 financial year.
