Moody’s Investors Service has downgraded some of QBE’s debt ratings because of weakened earnings, internal capital generation and debt servicing coverage.

The ratings agency says it has reduced the issuer and senior unsecured debt ratings to Baa1 from A3, with a negative outlook.

Moody’s began reviewing QBE last November after the insurer’s announcement of estimated losses from Superstorm Sandy, US crop failures and reserve strengthening for its US commercial insurance segment.

The downgrade also reflects QBE’s catastrophe exposure relative to capital and recent adverse trends in reserve adequacy, particularly in the US casualty business, according to New York-based Lead Analyst Alan Murray.

“Ongoing regulatory scrutiny of the US lender-placed homeowner insurance sector, in which QBE is a market leader, will also likely lead to margin compression in that segment in the coming years, although it remains profitable for QBE,” Mr Murray said. 

The negative outlook reflects the time it will take for management to refocus QBE on operational effectiveness and to enhance financial flexibility.

The Baa1 senior debt and issuer ratings reflect the good financial strength of the underlying operations and their geographic diversity.

The ratings action does not apply to QBE LMI.