A.M. Best Affirms Ratings of QBE Insurance Group Limited and Its Subsidiaries

A.M. Best Europe – Rating Services Limited has affirmed the financial strength ratings of A (Excellent) and the issuer credit ratings (ICR) of “a+” of QBE Insurance (Europe) Limited (United Kingdom), QBE Insurance (International) Limited (Australia) and QBE Reinsurance (Europe) Limited (Ireland). These companies are key operating subsidiaries of QBE Insurance Group Limited (QBE) (Australia), the non-operating holding company of the QBE group of companies. At the same time, A.M. Best has affirmed the ICR of “bbb+” and all debt ratings of QBE. The outlook for all ratings is stable. (See below for a detailed list of the debt ratings.)

QBE’s consolidated risk-adjusted capitalisation is expected to remain at a sufficiently strong level to support its operations in 2010, although the margin available to absorb future growth is likely to remain at a lower level than in previous years. Loss exposure to the major events of the year is expected to be comfortably absorbed by the group. In the first half of 2010, QBE’s catastrophe and large loss exposure represented 9.3% of its net premium revenue compared to 7.2% in the previous year. QBE continues to demonstrate strong financial flexibility. In 2010, the group has raised a total of USD 1,353 million, which was partly utilised to support its growth from acquisitions and to repay some of its existing debt.

A strong consolidated pre-tax profit is anticipated in 2010 (2009: USD 1,891 million), underpinned by a combined ratio similar to the 89% reported in the previous year (subject to normal catastrophe activity in the remainder of the year). Results are likely to be supported by an improvement in the attritional loss ratio, reflecting the corrective action taken by the group in response to the poor performance of certain classes of business in 2009. Additionally, claims related to the global financial crisis are expected to be significantly lower than in 2008 and 2009. The low interest rate environment is expected to affect underwriting earnings in 2010, owing to the lower risk free discount rates applied to outstanding claims, and lower investment earnings from cash and fixed interest investments. Results are also likely to be affected by the volatile performance of QBE’s small equity portfolio. As at June 2010, QBE reported equity losses (realised and unrealised) of USD 228 million, compared to a loss of USD 102 million reported for the same period in 2009.

QBE maintains a robust business profile, largely derived from its presence in the Australian, London and Lloyd’s markets, writing a well diversified portfolio of business by product and territory. The group continues to strengthen its profile in its other core regions (United States, Continental Europe and Asia-Pacific) through acquisition-based growth. The purchase of insurers and managing agents has increased QBE’s access to business in local markets and its control of its own distribution channels. The acquisition of the European property/casualty reinsurer, Secura N.V. (to be completed in the fourth quarter of 2010), is expected to improve QBE’s profile in Europe, owing to the strong brand of Secura N.V. in the Benelux and French regions. Organic growth for QBE as a whole is likely to be limited in the near term, owing to the challenging market conditions for most of its business lines.

The following debt ratings have been affirmed:

QBE Insurance Group Limited—

-- “bbb+” on USD 211 million 9.75% senior unsecured fixed rate notes, due 2014

-- “bbb+” on GBP 191 million 10.00% senior unsecured fixed rate notes, due 2014

-- “bbb+” on GBP 550 million 6.125% senior unsecured fixed rate notes, due 2015

-- “bbb+” on USD 853 million 2.50% senior convertible securities, due 2030

-- “bbb” on USD 250 million 5.647% subordinated notes, due 2023

-- “bbb-” on USD 550 million 6.797% perpetual preferred securities (issued by QBE

Capital Funding II L.P. (Jersey) and guaranteed by QBE)

-- “bbb-” on GBP 300 million 6.857% perpetual preferred securities (issued by QBE

Capital Funding L.P. (Jersey) and guaranteed by QBE)

The principal methodology used in determining these ratings isBest’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilised include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding Universal BCAR”; “Rating Members of Insurance Groups”; “Natural Catastrophe Stress Test Methodology”; “Equity Credit for Hybrid Securities”; and “A.M. Best’s Ratings & the Treatment of Debt". Methodologies can be found at http://www.ambest.com/ratings/methodology.

In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: http://www.ambest.co.uk/AMBERSDisclosure.pdf.

A.M. Best Europe – Rating Services Limited is a subsidiary of A.M. Best Company. Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers.