Fitch upgrades QBE ratings, citing strong financial performance

Credit rating agency Fitch Ratings has upgraded the Long-Term Issuer Default Rating (IDR) of QBE Insurance Group Limited to ‘A’ from ‘A-’ and raised the Insurer Financial Strength (IFS) Ratings of its core subsidiaries to ‘AA-’ from ‘A+’.

The outlook for all ratings is stable. Fitch pointed to QBE’s improved financial performance, solid capital position, and steady business fundamentals as the main reasons for the upgrade.

Over the past three years, QBE has shown a consistent improvement in its underwriting results. This progress has been aided by ongoing premium rate increases and risk management efforts aimed at reducing earnings variability.

The combined ratio improved to 91% in 2024 from 93% in 2023 and 95% in 2022. Return on equity rose to 17% in 2024 and 14% in 2023, up from just 7% in 2022—figures that align with Fitch’s benchmarks for insurers rated in the ‘AA’ category.

The group’s overall earnings stability has strengthened, aided by reinsurance transactions that transferred up to USD3.5 billion in long-tail reserves from its North American and International operations.

Net income increased to USD1.8 billion in 2024, up from USD1.4 billion in the previous year, with all major divisions—including the previously underperforming North America segment—reporting underwriting profits.

QBE’s capitalisation remains robust. The Fitch Prism Factor-Based Capital Model score stayed at ‘Extremely Strong’ in 2024, supported by low asset risk exposure and a strong reinsurance structure that limits potential losses from major events.

On a pro forma basis after dividends, regulatory capital coverage stood at 1.77 times at the end of 2024, comfortably exceeding Fitch’s criteria for an ‘AA’ IFS rating and within the upper end of QBE’s internal target range.

Financial leverage is expected to rise slightly to around 26%, up from 20% in 2024 and 22% in 2023, due to the recent redemption of Additional Tier 1 securities and the issuance of Tier 2 instruments. While this is just above Fitch’s ideal range for the current rating category, the agency expects gradual improvement as retained earnings continue to build capital.

QBE has maintained strong access to capital markets, supported by investor confidence and consistent operating performance. The fixed-charge coverage ratio rose to 12 times in 2024, from 10 times in the previous year, further demonstrating the group’s ability to meet its financial obligations.

Fitch maintains a ‘favourable’ assessment of QBE’s company profile, largely due to its global footprint, broad operational reach, and governance practices that are broadly in line with other Australian insurers.

Improved results in Europe and Australia have partially offset weaker performance in North America in recent years. In 2024, QBE announced the closure of its North American middle-market business—a move aimed at reducing exposure to underperforming segments and reallocating resources to parts of the business with stronger market positioning.

Future rating changes will depend on the group’s ability to sustain its current financial and operational trajectory.

A meaningful and prolonged decline in performance—such as return on equity falling below 9%—or a deterioration in capital strength could prompt a downgrade. On the other hand, further improvements in business scale and risk profile could support a higher rating in the future.

Environmental, social and governance (ESG) factors currently have minimal influence on QBE’s credit rating. Fitch assigns QBE an ESG relevance score of ‘3’, indicating that these considerations are credit-neutral and do not materially impact the agency’s rating analysis at this time.

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