QBE outlook back to ‘stable’ from ‘negative’ on underwriting improvements

Moody’s Investors Service has turned its outlook on  QBE Insurance Group to stable from negative on improved underwriting performance, with expectation of stronger organic capital generation in the near future.

Moody’s has affirmed the A3 issuer rating of  QBE, as well as the A1 insurance financial strength ratings (IFSR) of its main operating subsidiaries and has changed the outlooks to stable from negative.

The change in outlook reflects Moody’s expectation that “ QBE's improved underwriting performance in 2021 will sustain in the next 12-18 months, underpinned by rising premium rates, high levels of customer retention and declining attritional claims ratios.”

The ratings agency believes the group’s operating leverage combined with improved underwriting performance “should lead to stronger organic capital generation and higher levels of interest coverage.”

The rating affirmations reflect the group’s broad product and geographical diversification, strong capitalisation, low levels of financial leverage and strong asset risk profile, Moody’s noted.

However, these positive considerations are tempered by the group's significant aggregate worldwide catastrophe underwriting exposures, which Moody’s warned, could present a source of earnings volatility.

According to the agency,  QBE's product and geographical diversification is high as the group has five product lines each representing close to or above 10% of gross written premiums. The group writes business across three distinct divisions which cover a multitude of countries. The group benefits from strong levels of capital, as reflected in its consolidated regulatory capital ratio of 1.81x as of 31 December 2021 as set by the Australian Prudential Regulation Authority.

QBE's financial leverage is low, and the group operates to a debt-to-total capitalisation target range of 15% to 30%. At 31 December 2021, the group reported a debt-to-total capitalisation ratio of 26.9%, or 24.1% when excluding subordinated debt intended to be redeemed.

On a Moody's financial leverage measure, the group had a debt-to-capital ratio of circa 34% as of 31 December 2021, or circa 32% when excluding subordinated debt intended to be redeemed.

“The credit quality of  QBE's investment portfolio is very strong with a high proportion of well-rated fixed income investments and it is one of its credit strengths. While we expect the group to rebalance the portfolio and introduce a higher weighting to growth assets, Moody's expects its asset risk profile will remain relatively strong,” Moody’s concluded.

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