Fitch Ratings has affirmed the “A-plus” insurer financial strength (IFS) ratings for the subsidiaries of QBE Insurance Group, while downgrading the group’s long-term issuer default rating (IDR) to “A-minus.”

The downgrade of QBE’s IDR reflects Fitch’s uncertainty around the future supportability of the group’s significant level of goodwill ($4 billion at year-end 2013).

In affirming QBE’s IFS ratings the agency has considered the historically strong underwriting performance of the group. Fitch, however, revised the rating outlook to negative, reflecting the potential for further goodwill impairments, ongoing operational problems and constrained financial flexibility, the rating agency said.

These rating actions follow the unexpected write down of goodwill and intangibles in addition to a prior accident-year claims reserve deterioration.

QBE’s financial leverage, measured by adjusted debt to total capital, is expected to stand at 28 percent by year-end 2013, after incorporating the write downs, Fitch said, adding that this is at the midpoint when compared to Fitch’s median criteria guideline for an “A”-rated insurer. However, the impairment and materiality of QBE’s remaining goodwill means Fitch now also places greater emphasis on financial leverage excluding goodwill. Under this calculation the agency expects financial leverage to be around 41 percent at year-end 2013, which is below Fitch’s “A” median criteria guideline.

Fitch has also assigned Equator Reinsurances Limited (Equator Re) an IFS rating of “A-plus.”

In assigning the group rating to QBE’s captive reinsurer Equator Re, Fitch has classified the subsidiary as core. The agency believes Equator Re is intricately tied to QBE’s risk management strategy, and by enabling QBE to manage risk retentions both at a group and divisional level serves a clear economic purpose.

Source: Fitch Ratings