Rating agencies react to QBE’s expected heavy 2020 loss

Rating agencies have reacted negatively to of QBE Insurance Group’s admission last week that it anticipates it will make a heavy loss for 2020.

The Australia-based re/insurer revealed it expects to report a substantial net loss for fiscal year 2020 of approximately A$1.9 billion ($1.5 billion).

The expected net loss for the period incorporates charges of approximately $520 million write-down of goodwill and deferred tax assets in the group's North American business, $470 million of COVID-19 related costs, $360 million for adverse prior year reserve development, and $130 million for higher than expected natural catastrophe costs loss.

Moody's was one of the first to react by changing the outlook on QBE’s A1 financial strength rating to negative from stable.

The rating agency said the change reflected the group's earnings volatility following the announcement of the heavy losses as well as the view that its earnings profile remains weak relative to its similarly rated peers, and the loss for the period is expected to increase the group's debt-to-equity ratio and will weaken earnings coverage metrics.

Moody’s added, however, that the ratings reflect the group's broad product diversification, strong capitalization, and strong asset quality. The group's capital position has benefited from the $750 million institutional placement equity raising completed in April and further equity raising of approximately A$91.5 million via a Share Purchase Plan.

QBE Interim Group CEO, Richard Pryce said: “While I am very disappointed with the headline statutory loss, I am increasingly confident about the pricing cycle, particularly in the northern hemisphere, and the outlook for the underlying business. Premium rate momentum accelerated in North America and International during 3Q20 and the FY20 attritional claims ratio is expected to improve further from 45.5% reported in 1H20.

“As we move into 2021, my focus remains on ensuring the Group takes full advantage of currently favourable market conditions by locking in margin expansion while driving targeted growth in portfolios and regions offering the most profitable new business opportunities. Our balance sheet remains strong and able to fund expected growth.”