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Fitch Rates QBE's Perpetual Capital Notes Final 'BBB-'
November 13, 2017 / 2:47 AM / in 10 days

Fitch Rates QBE's Perpetual Capital Notes Final 'BBB-'

(The following statement was released by the rating agency) SINGAPORE, November 12 (Fitch) Fitch Ratings has assigned QBE Insurance Group Limited's (QBE; A-/Positive) regulatory compliant USD400 million Additional Tier 1 perpetual capital notes a final rating of 'BBB-'. The perpetual securities represent QBE's direct, unsecured and subordinated obligations. Net proceeds will be used to finance gender equality-aligned assets in accordance with QBE's Gender Equality Bond Framework. The assignment of the final rating follows the receipt of documents conforming to information previously received. The final rating is the same as the expected rating assigned on 8 November 2017. KEY RATING DRIVERS The Additional Tier 1 notes are rated three notches below the holding company's Issuer Default Rating of 'A-': two notches for Fitch's assumption of 'poor' recovery prospects in the event of default, given the level of subordination, and one notch for non-performance risk, which Fitch views as 'moderate' under its criteria. Interest payments are non-cumulative and management has the right to cancel payments, in whole but not in part, at its discretion. The notes would be written off or converted to equity in part or in full should the Australian Prudential Regulation Authority (APRA) deem that QBE would become non-viable without conversion or a public-sector capital injection. Fitch considers that APRA is unlikely to activate the non-viability trigger unless the event in question was a sustained one that would lead to QBE's non-viability. In terms of management's discretion to cancel payments, Fitch believes management is more likely to cancel payments for Additional Tier 1 notes compared with Tier 2 securities with similar cancellation triggers, and thus the former have greater non-performance risk. Under Fitch's methodology, the notes will be given 100% equity credit in the calculation of Fitch's capital adequacy ratio. The notes will be treated as 0% debt in financial leverage ratios, given that the instruments are akin to deeply subordinated debt that has the key features of perpetual preferred securities, including permanence and deferrable coupons that are non-cumulative. Fitch estimates QBE's leverage at below 25% after this issuance. This is stronger than the median score of 28% for 'A' rated issuers based on Fitch's methodology. RATING SENSITIVITIES QBE's subordinated debt ratings are broadly sensitive to the same considerations that might affect the group's Issuer Default Rating. Key upgrade rating triggers include: - Combined ratio consistently below 95% (2016: 94%) - Coverage of the regulatory prescribed capital amount (PCA) of above 1.70x for a prolonged period and its capital, as measured by Fitch's Prism Factor-Based Capital Model (FBM), reaching 'Very Strong' levels (2016 PCA: 1.76x; FBM score: 'Strong') - Consistently favourable financial leverage ratio, sound market franchise and sustainable premium base. Key downgrade rating triggers include: - Increased impetus by APRA in activating the non-viability trigger for this Additional Tier 1 issuance - Deterioration in financial fundamentals, such as significant weakness in QBE's business profile leading to loss of market share and franchise - A combined ratio above 100%; - PCA coverage of below 1.5x on a prolonged basis - Financial leverage of above 30% (2016: 23%) and a fixed-charge coverage ratio consistently below 4x (2016: 5x). Contact: Primary Analyst Wan Siew Wai Senior Director +65 6796 7217 Fitch Ratings Singapore Pte Ltd. One Raffles Quay South Tower #22-11 Singapore 048583 Secondary Analyst Christopher Han Associate Director +65 6796 7224 Committee Chairperson Jeffrey Liew Senior Director +852 2263 9939 Date of Relevant Rating Committee: 27 October 2017 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

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