Credit rating agency Fitch Ratings has given a “BBB” rating to QBE Insurance Group's A$300 million regulatory compliant Tier 2 subordinated securities.
The securities have been issued through QBE's note issuance programme and will be its direct, unsecured, and subordinated obligations.
Fitch rated the subordinated securities two notches below QBE's Issuer Default Rating (IDR), composed of two notches for “poor” baseline recoveries and zero for “minimal” non-performance risk.
Fitch gave a “poor” rating to reflect its assumptions for subordinated debt issued at a holding company in accordance with its criteria.
“Should the company be wound up, the issuer's payment obligations under the securities rank behind all senior creditors, but ahead of ordinary shares and additional Tier 1 securities,” the agency said. “The notes contain an optional interest deferral feature based on issuer discretion. The notes would convert to equity in part or in full should APRA deem that QBE would become non-viable without conversion or a public-sector capital injection. The notes would be written off in part or in full were QBE unable to convert the notes to equity within five business days of the trigger event date.”
Fitch also deemed non-performance risk “minimal,” and refused to apply additional notching in accordance with its criteria.
Fitch described QBE's IDR as having a “strong” capitalisation and leverage, “favourable” company profile, and “strong” financial performance and earnings.
“The group's underwriting performance, which was volatile in the past five years, continued to improve in 2022, with QBE achieving underwriting profitability across all operating segments,” the agency said.
“The Fitch Prism Model score has been at least 'Very Strong' in recent periods, and coverage of the regulatory prescribed capital amount was high (end-2022: 1.79x). QBE's Fitch-calculated financial leverage ratio was 23% at end-2022 and is supportive of the ratings.”
