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Fitch Assigns QBE Blue Ocean Re First-Time 'A+' IFS Rating; Outlook Stable.

Sydney/Singapore: Fitch Ratings has assigned Bermuda-based QBE Blue Ocean Re Limited an Insurer Financial Strength (IFS) Rating of 'A+' (Strong). The Outlook is Stable. Blue Ocean is the captive reinsurer for the North American operations of Australia-based QBE Insurance Group Limited (QBE, Long-Term Issuer Default Rating: A-/Stable).


Blue Ocean's rating is aligned with the 'A+' (Strong) IFS Ratings of QBE's operating subsidiaries, which reflect the group's 'Very Strong' business profile, 'Strong' capitalisation and leverage and 'Strong' financial performance and earnings. The Stable Outlook reflects our Outlook on QBE.

Fitch sees Blue Ocean as a core captive, as its mission and strategic goals are intricately tied to QBE group's risk-management strategy by helping the group manage risks and costs more efficiently. The vast majority of its business is derived from the QBE group, which has a reasonable financial propensity to support Blue Ocean's ongoing solvency and viability.

Blue Ocean was established in response to the introduction of the base erosion anti-abuse tax as part of the US Tax Reform Act in December 2017. The company provides reinsurance services to QBE's North American operations - a role earlier performed by QBE's subsidiary, Equator Reinsurances Limited (IFS Rating: A+/Stable). QBE has transferred ownership of Equator Re from QBE Insurance Holdings Pty Limited to Blue Ocean. As a result, Blue Ocean's consolidated profile is similar to that of Equator Re pre 2018. Equator Re will continue to provide reinsurance cover to QBE's operations outside North America.

Equator Re's net assets dropped to USD936 million in 2017, from USD1.5 billion in 2016, due to catastrophe losses stemming from QBE's operations. We expect Blue Ocean's consolidated capital position to improve alongside better profitability, which is further supported by access to the group's contingent capital facility.


Blue Ocean's rating will move in tandem with QBE group's ratings, whose sensitivities are as follows:

Upgrade triggers include:

- sustained material improvement in group financial fundamentals, with return on average equity consistently above 10%; and

- financial leverage ratio below 23% and fixed-charge coverage ratio above 9x on a prolonged basis, while maintaining a strong market franchise and capital position.

Downgrade triggers include:

- continued deterioration in QBE's underwriting and financial performance, with the combined ratio consistently above 100%;

- prescribed capital amount coverage of below 1.50x for a prolonged period;

- financial leverage of above 30% and fixed-charge coverage ratio consistently below 4x; and

- significant deterioration of market franchise and standing.


QBE Insurance Corporation: IFS Rating 'A+'; Outlook Stable

QBE Insurance (Europe) Limited: IFS Rating 'A+'; Outlook Stable

QBE Re (Europe) Limited: IFS Rating 'A+'; Outlook Stable

QBE Hongkong & Shanghai Insurance Limited: IFS Rating 'A+'; Outlook Stable

QBE Reinsurance Corporation: IFS Rating 'A+'; Outlook Stable

Equator Reinsurances Limited: IFS Rating 'A+'; Outlook Stable

QBE Europe nv/sa: IFS Rating 'A+'; Outlook Stable

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Publication:Daily the Pak Banker (Lahore, Pakistan)
Date:Jan 11, 2019
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