Best Sees No Effect on QBE’s Ratings from Balboa Deal

A.M. Best Co. has commented that the financial strength rating of ‘A’ (Excellent) and issuer credit ratings of “a” of the New York-based QBE Re Group – US and its members are unchanged following the announcement that the ultimate parent, Australia’s QBE Insurance Group Limited, is “entering into a ten-year distribution agreement with Bank of America Corporation (BAC) for the lender-placed and voluntary homeowners’ contents, motor and other related customer lines and associated services written by BAC’s wholly owned subsidiary, Balboa Insurance Company (Balboa), and affiliated entities.”

The transfer of the portfolio is expected to be effective in April 2011, following regulatory approvals.

Best pointed out that as part of the agreement, “QBE will assume all of Balboa’s outstanding loss reserves and unearned premium liabilities (via loss portfolio transfer) in addition to acquiring the distribution rights integral in sourcing and servicing the business.”

In addition the rating agency noted that “QBE Re writes similar lender-placed business produced by affiliated agency Sterling National; therefore, the acquired business will give QBE access to approximately $1.5 billion of gross premium income, which places QBE among the largest insurers of lender-placed business in the U.S. In the interim, however, business is expected to be fronted by Balboa until QBE receives the state licensing necessary to write this business.”

Best expects QBE’s risk-adjusted capitalization “to remain supportive of its ratings following close of the acquisition, benefiting from an expected infusion of capital from QBE, and explicit quota share reinsurance from reinsurance affiliate Equator Reinsurances Limited to support the portfolio transfer.”

Best also indicated that it believes the acquisition will “have a positive impact on QBE Re’s future operating performance given the historically strong underwriting profitability associated with this portfolio.”

Source: A.M. Best