QBE Insurance Group has issued A$600 million in subordinated Tier 2 notes, which Fitch Ratings has assigned a “BBB” rating.
The Australian insurer structured the offering through its note issuance program, with the securities categorised as direct, unsecured, and subordinated debt.
The offering included two components:
Both tranches carry an 11-year maturity and feature call options exercisable after six years, contingent on regulatory approval from the Australian Prudential Regulation Authority (APRA).
The floating-rate notes are pegged to the three-month bank bill swap rate (BBSW) plus 1.95%, while the fixed-to-floating notes offer a 5.802% fixed coupon for six years, resetting to BBSW plus 1.95% thereafter.
QBE plans to apply the proceeds for general corporate use.
Fitch assigned the notes a rating two levels below QBE’s Issuer Default Rating (IDR) of “A-,” citing structural subordination and assumed recovery outcomes.
The agency’s methodology considered such instruments to have limited recovery potential in a default scenario.
As subordinated instruments, these notes ranked below senior obligations but above equity and Additional Tier 1 securities in the capital structure.
The instruments did not include discretionary deferral of interest. Under APRA regulations, the notes can be converted to equity or written down if the insurer is deemed non-viable and conversion is either necessary or not feasible within five days.
Fitch classified the non-performance risk as minimal and applied no additional downward notching.
The issuance qualified as Tier 2 capital for regulatory purposes, receiving full equity credit in Fitch’s Prism capital model. However, for financial leverage calculations, the agency treated the instruments as debt.
Fitch anticipates QBE’s leverage ratio to rise to around 26% on a pro forma basis, considering this transaction, a recent US$500 million Tier 2 issuance, and the May redemption of US$900 million in Additional Tier 1 notes.
QBE’s Q1 2025 update showed gross written premiums increasing 8% year over year on a constant currency basis. Growth was driven by both rate improvements and underwriting volume, especially in international and North American markets.
A US$100 million headwind from runoff in non-core North American operations partially offset this expansion.
Natural catastrophes, including California wildfires, Queensland floods, Cyclone Alfred, and North American storms, resulted in net claims of approximately US$420 million. These are measured against a first-half allowance of US$549 million.
Investment income totalled US$410 million for the quarter, aided by higher yields and performance in risk assets.
The group’s funds under management grew to US$31.6 billion, with risk asset allocation increasing to 15%.
Gains in fixed income were offset by liability adjustments, yielding a neutral asset-liability impact.
QBE reaffirmed its full-year guidance, including mid-single-digit premium growth and a combined operating ratio target of 92.5%.
The group factored in a US$250 million impact from planned exits in its U.S. portfolio.
Looking forward, QBE aims to deepen its focus on artificial intelligence in underwriting, optimise portfolio management, and align sustainability reporting with evolving regulatory standards in Australia.
The company will release its half-year results on Aug. 8.
