Sydney-headquartered QBE Insurance Group (QBE), one of the world's top 20 general insurance and reinsurance companies, improved its underwriting performance significantly in the past three years, said Fitch Ratings.
The performance was supported by continued premium rate increases and various underwriting efforts across the group to reduce earnings volatility. QBE’s Fitch-calculated combined ratio improved to 91% in 1H2024 and 93% in 2023 (2022: 95%), while return on equity rose to 16% and 14% over the same period (2022: 7%).
Fitch expects the group's reserve risk volatility to ease following recent reserve transactions, which reinsured up to $3.5bn of long-tail reserves in its North American and international businesses. QBE's reported net profit doubled to $806m in 1H2024, from $404m in 1H2023, on a stronger insurance service result that reflected lower catastrophe costs and more stable reserve development. All segments recorded an underwriting surplus, including the North American business, which had previously reported weak results.
Outlook improves
Fitch has revised the outlook on all the ratings of Australia-based QBE Insurance Group and its subsidiaries to ‘Positive’ from ‘Stable’. The agency has affirmed QBE's Long-Term Issuer Default Rating at 'A-' and the Insurer Financial Strength (IFS) Ratings of the core subsidiaries' at 'A+' (Strong).
The ‘Positive’ outlook reflects QBE's improving financial performance and solid capitalisation metrics, which compare favourably against Fitch's criteria guidelines for the 'A' IFS Rating category. The affirmation reflects the non-life insurance group's 'Favourable' company profile.
Aside from financial performance, other major drivers of QBE’s ratings include:
Solid Capital Metrics: QBE's Fitch Prism Global score was 'Extremely Strong' at end-2023, supported by low asset risks and a strong reinsurance programme, which limits the non-life insurer's catastrophe exposure. Coverage of the regulatory prescribed capital amount (PCA) was high at 1.77x at end-1H24 and stronger than Fitch's criteria guideline for the 'A' IFS Rating category. The ratio has also remained towards the top end of management's target range of 1.6x-1.8x. QBE's Fitch-calculated financial leverage ratio (end-1H24: 21%) is moderate and supportive of the ratings.
Favourable Company Profile: Fitch ranks QBE's company profile as 'Favourable' as a result of a 'Favourable' business profile and 'Neutral' 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 offset weaker performance in North America in recent years. In June 2024, QBE said it would close its North American middle-market business while it refocuses on businesses that have more meaningful market positions, relevance and scale.
Strong 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 Fitch believes sustained robust operational performance will underpin the insurer's financial flexibility. QBE's fixed-charge coverage ratio (2023: 9.6x, 2022: 4.7x) has risen in line with the improving profitability.
Low Investment Risk: QBE has a conservative investment strategy, with an investment portfolio that is weighted towards high-quality fixed-income securities. Its Fitch-calculated risky-asset ratio remains low (2023: 26%).