QBE Lenders# Mortgage Insurance Ltd. Ratings Affirmed At #A+#; Outlook Stable

Stocks and Financial Services Press Releases Thursday September 28, 2017 08:55
SYDNEY--28 Sep--S&P Global Ratings

SYDNEY (S&P Global Ratings) Sept. 28, 2017--S&P Global Ratings said today that it had affirmed its 'A+' financial strength and issuer credit ratings on QBE Lenders' Mortgage Insurance Ltd. (QBELMI). The outlook is stable.

The affirmation reflects our assessment of QBELMI's stand-alone credit profile (SACP) as 'a+'. The SACP captures the insurer's very strong business risk position and strong financial risk profile supported by strong capital and earnings.

Following a material increase in internal reinsurance with Equator Re (a captive reinsurer of QBE Group), we no longer view QBELMI as a partially insulated subsidiary of QBE Group due to a greater interdependency between the two entities. While this has no impact on the current rating, QBELMI's rating is now capped at the level of the group credit profile, which is 'a+'.

We have also revised our view of QBELMI's financial flexibility to adequate from strong, although this is a neutral factor in the ratings. This change reflects our view that QBELMI has limited ability to raise additional capital independently of QBE Group.

We believe QBELMI has a very strong competitive positive as the second largest player in the Australian lenders' mortgage insurance market. The insurer has also maintained sound operating performance in the context of the current market headwinds and increased intensity of competition in the local LMI market. QBELMI also continues to have a strong capital and earnings position, supported by its 'A' level of capital adequacy under our global mortgage insurance capital model. Capital adequacy has been maintained subsequent to the risk transfer, via reinsurance with Equator Re.

We have also affirmed QBE Mortgage Insurance (Asia) Ltd. as a highly strategically important subsidiary to QBELMI and expect it to receive support if needed.
Our stable outlook on QBELMI reflects its stand-alone credit strength, which we expect will be maintained over the next two years.
The SACP is equivalent to the group credit profile of 'a+'. QBELMI's rating is now capped at that level because we no longer view QBELMI as a partially insulated subsidiary of the group.

Downward ratings pressure on QBELMI could occur if: The group credit profile was lowered; orCapital adequacy deteriorated substantially below the 'A' category level under our global mortgage insurance capital model; orThe business risk profile deteriorated from a very strong level due to a material deterioration in operating performance relative to our expectations or if we assess a structural deterioration in earnings. A loss of major clients that significantly weakens the market share would also pressure the business profile assessment.

We view upward ratings movement for QBELMI as unlikely, given that the ratings are currently capped at the group credit profile.
QBELMI would not benefit from a one-notch upgrade in the group credit profile as a strategically important entity, given its SACP is the same as the group.

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