Fitch Ratings has affirmed Australia-based QBE Insurance Group Limited's Long-Term Issuer Default Rating (IDR) at 'A-' and the Insurer Financial Strength (IFS) Ratings of its core subsidiaries at 'A+' (Strong).
The Outlook on the ratings is Stable.
A full list of rating actions is below.
The affirmation reflects QBE's 'Strong' capitalisation and leverage, 'Favourable' company profile and 'Strong' financial performance and earnings.
Key Rating Drivers
Steady Capital Metrics: Fitch assesses QBE's capitalisation and leverage as 'Strong'. Its Fitch Prism Model score remained 'Very Strong' at end-2022, similar to the end-2021 result. Coverage of the regulatory prescribed capital amount (PCA) was high (end-1H23: 1.8x) and compares well against Fitch's criteria guidelines for the 'A' IFS Rating category. Non-risk-adjusted capital metrics, including net written premiums to capital (end-2022: 1.7x), remain commensurate with the rating. QBE's Fitch-calculated financial leverage ratio (end-2022: 23%) is moderate and supportive of the ratings.
Recovery in Underwriting Performance: QBE's underwriting performance, which was volatile in the past five years, was favourable in 2022 and 1H23. It reported an insurance service result of USD377 million in 1H23 (1H22: USD386 million) under the new accounting standard, IFRS17. Its statutory combined ratio under the previous accounting standard, IFRS4, improved to 86% in 2022 (2021: 92%, 2020: 107%), reflecting the favourable pricing environment and portfolio underwriting actions by QBE as well as the sharp uptick in discount rates used to value claim liabilities.
High catastrophe costs continue to weigh on QBE's earnings, with the North America and Australia Pacific businesses being affected in 1H23. Reserve risk volatility is likely to reduce following a recently completed reserve transaction that reinsured USD1.9 billion of long-tail reserves.
Investment Income Supports Earnings: The group's 1H23 net profit rose to USD404 million (1H22: USD51 million) on a stronger investment result. Total investment income rose to USD662 million, against a loss of USD20 million in 1H22. We expect QBE's near-term earnings to be supported by steady re-investment yields.
Favourable Company Profile: Fitch ranks QBE's company profile as 'Favourable' as a result of a 'Favourable' business profile and 'Moderate/Favourable' corporate governance compared with that of other Australian insurers. It has a large operating scale and diversified international operations. Stronger underwriting performance in its European and Australian businesses has helped to offset weaker performance in its North American operations in recent years.
Adequate Financial Flexibility: QBE has demonstrated a strong ability to access both debt and equity capital markets. Institutional and retail investors have supported QBE's various capital initiatives, and we believe sustained robust operational performance will help underpin financial flexibility. QBE's fixed-charge coverage ratio (2022: 4.9x) remained below Fitch's criteria guidelines for the 'A' IFS Rating category because of volatile profitability.
Low Investment Risks: QBE has a conservative investment strategy. Its investment portfolio is weighted towards high-quality fixed-income securities. QBE's Fitch-calculated risky-asset ratio rose to 25% by end-2022 (end-2021: 12%) as the insurer added more equity and growth assets to its investment portfolio. This follows a significant risk reduction in the investment portfolio following Covid-related market volatility, which led QBE to dispose of its portfolio of high-yield and emerging-market debt investments, as well as listed equities.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:
Sustained deterioration in financial performance, including weaker underwriting profitability
PCA coverage staying below 1.5x and the Fitch Prism Model score below 'Strong' for a prolonged period
A significant worsening in the company profile, evident from a loss of market share and franchise, may also lead to a downgrade.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:
Material improvement in the group's overall financial performance, including stronger underwriting profitability
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
QBE INSURANCE GROUP LIMITED 
