QBE Insurance Group has priced the issue of $300 million of floating rate subordinated notes under its notes issuance program.
The notes have a term of 16 years, maturing on 28 June 2039. They are callable after six years. Interest is payable on the notes quarterly in arrears at a rate equal to the prevailing three-month BBSW plus a spread of 3.10% per annum.
The notes are eligible as Tier 2 capital of QBE under APRA’s capital adequacy framework. The notes are required to be converted into ordinary shares in QBE in whole or in part if APRA determines QBE is or would become non-viable.
The net proceeds will be used for general corporate purposes within the group.
Credit rating agency Fitch has given a ‘BBB’ rating to the securities.
Fitch said in its statement: “The subordinated securities are rated two notches below QBE’s Issuer Default Rating (IDR), comprising two notches for ‘Poor’ baseline recoveries and zero for ‘Minimal’ non-performance risk.
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“The notching for ‘Poor’ recoveries reflects our assumptions for subordinated debt issued at a holding company as per our criteria; should the company be wound up, the issuer’s payment obligations under the securities rank behind all senior creditors, but ahead of ordinary shares and additional Tier 1 securities.
“The notes contain an optional interest deferral feature based on issuer discretion. The notes would convert to equity in part or in full should APRA deem that QBE would become non-viable without conversion or a public-sector capital injection. The notes would be written off in part or in full were QBE unable to convert the notes to equity within five business days of the trigger event date. Fitch does not think that APRA would activate the non-viability trigger unless the event was sustained and would lead to QBE’s non-viability.
“We regard the above features as having ‘Minimal’ non-performance risk and we have therefore not applied additional notching as per our criteria.”
The rating agency also said: “QBE’s IDR reflects its ‘Strong’ capitalisation and leverage, ‘Favourable’ company profile and ‘Strong’ financial performance and earnings. The group’s underwriting performance, which was volatile in the past five years, continued to improve in 2022, with QBE achieving underwriting profitability across all operating segments. The Fitch Prism Model score has been at least ‘Very Strong’ in recent periods, and coverage of the regulatory prescribed capital amount was high (end-2022: 1.79x). QBE’s Fitch-calculated financial leverage ratio was 23% at end-2022 and is supportive of the ratings.”
