QBE underwriting reforms show promise: S&P Global

QBE to maintain capital redundancy at or above the 99.95% stress level.

Australia-based QBE Insurance is expected to see a positive outlook on the back of underwriting reforms and pricing improvement across the group, S&P Global Ratings said.

They anticipate QBE's underwriting results will align with similarly rated peers and move closer to higher-rated peers. S&P expects QBE to maintain capital redundancy at or above the 99.95% stress level over the next 12-24 months and towards the upper end of its target regulatory range.

The revised capital model criteria did not significantly impact S&P's view of QBE's creditworthiness. 

However, it did increase the buffer at the 99.95% capital level over the forecast period, supporting the current rating. 

This improvement is primarily due to an increase in total adjusted capital (TAC) from the non-deduction of deferred acquisition costs and a larger hybrid capital allowance.

S&P highlighted the benefits of QBE's risk diversification, which supports its capital adequacy given its diverse business mix.

S&P indicated potential upside to QBE's ratings in the next 12-24 months if QBE achieves greater balance and stability of revenue and earnings across its large regional businesses, particularly in North America, maintains strong underwriting results with a sustainable combined ratio at or below 95%, and demonstrates reduced earnings volatility and adverse reserve development.

Conversely, the outlook could return to stable if QBE fails to sustain its improved underwriting performance or if its capital adequacy buffer deteriorates due to changes in risk appetite, inappropriate pricing or risk selection, or inadequate reinsurance protection.