A.M. Best Affirms Ratings of QBE Re Group - U.S.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating of A (Excellent) of QBE Re Group - U.S. (QBE Re) (New York, NY) and its subsidiaries. At the same time, A.M. Best has affirmed the issuer credit rating (ICR) of "a" of QBE Reinsurance Corporation (Philadelphia, PA) and assigned an ICR of "a" to QBE Reinsurance Corporation's subsidiaries, QBE Insurance Corporation (Philadelphia, PA) and QBE Specialty Insurance Company (Bismarck, ND). The rating outlook is stable.

The rating reflects the group's strong risk-adjusted capital position, strong underwriting controls and improved operating performance since 2001.

The rating also reflects the support of QBE Re's ultimate parent, QBE Insurance Group Limited, which has provided capital and reinsurance support in recent years. QBE Re is the U.S. operating platform within QBE Insurance Group Limited, which is one of Australia's largest insurance/reinsurance organizations. The group received a total of $150 million of capital contributions from its parent in 2003 and 2004 to support the U.S. group's premium growth. Additionally, in 2004, the group further benefited from a catastrophe cover placed with the parent during the U.S. hurricane season, limiting net losses. In previous years, the group benefited from affiliated reinsurance protections, including protection for the facultative casualty business.

Offsetting these strengths is the group's limited internal capital generation from earnings in recent years. In addition, there is a greater degree of uncertainty with respect to QBE Re's recent aggressive growth in gross and net premium volume within specialty classes of business underwritten through program managing agents (program managers).

Despite these concerns, A.M. Best believes that premium growth in program manager-produced business is partially mitigated by QBE Re's commitment to maintaining pricing adequacy and prudent underwriting controls over this business. A.M. Best will continue to actively monitor QBE Re's expansion into this business. Additionally, management has limited the group's net exposure from a single catastrophic event to about 5% of policyholders' surplus.

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