Insurance Post

QBE ratings stable after PMI announcement – Moody’s

Moody's Investors Service has affirmed its A3 issuer rating of QBE Insurance Group Limited following the announcement of its proposed acquisition of PMI Australia and PMI Asia for approximately A$1bn.

At the same time, Moody's maintains its stable outlook on all the ratings of QBE.

"The affirmation of QBE's ratings with a stable outlook is based on the fact that the funding of the proposed transaction – partly by cash, a contingent note and some additional senior debt – would not materially increase QBE's financial leverage, which is expected to remain in the low 30% range," says Sally Yim, Moody's assistant vice president/analyst.

PMI Australia and PMI Asia are the Australian and Asian subsidiaries, respectively, of The PMI Group, and write lenders' mortgage insurance (LMI) products and credit enhancement products for bank and non-bank institutions in Australia, New Zealand and Hong Kong.

"Despite current negative pressure on profitability, given less favorable credit conditions arising from a slowing housing market and increases in interest rates in Australia, the stand-alone financial profile of PMI Australia remains solid," said Yim.

"Therefore, the transaction is expected to bring in good returns for QBE, provided there is no major deterioration in the housing market or economy."

Moody’s said it will continue to review PMI Australia’s insurance financial strength rating of Aa3 for possible downgrade. The review was originally begun on July 9.

"Moody's views the acquisition of PMI Australia as a credit positive for the company as QBE, in its role as the new owner, will be better positioned to provide financial support, if needed," says Wing Chew, a Moody's a vice president and senior analyst.

"However, as PMI Australia is still in the process of diversifying its transitional reinsurance coverage, the rating will remain under review for possible downgrade," says Chew.

However, despite the slowdown in the volume of loan originations and the higher level of claims brought on by tightening credit conditions, PMI Australia continues to generate an underwriting profit, Chew said.

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