QBE has raised $US250 million ($A376 million) with the successful issue of subordinated notes in the US market. The notes were issued through a private placement to institutional investors, and CEO Frank O’Halloran said they were “strongly supported” by the US investors.

The notes raised came with a 20-year final maturity, callable after 10 years, with a fixed rate for the first 10 years and a floating rate thereafter.

Mr O’Halloran said the proceeds of the issue will be used to repay existing senior debt and for general corporate purposes. “The notes will provide financial flexibility, further strengthen the balance sheet and meet our objective of achieving a lower cost of borrowings in the current favourable interest rate environment.”

He said QBE remains on target for 2003 premium growth and insurance profit projections “at the higher end of the 7% to 8% range, involving a combined operating ratio of less than 97%.”

Moody’s Investors Service assigned an A3 issuer rating and a Baa1 rating to the issue, saying it reflects QBE’s “experienced and proactive senior management team, integrated management philosophy, disciplined approach to acquisitions, and its position as the lead or joint lead underwriter in most of its markets”.

“They further reflect its moderately diversified operations, good underwriting performance, conservative risk and investment management policies, and its stated objective of lowering its financial leverage.”

But Moody’s sounded one note of caution, saying the ratings also reflect QBE’s rapid growth through acquisitions over the past few years, its relatively high operating and financial leverage levels and expansion into longer-tail, riskier lines of business. QBE has quadrupled in size over the past five years, with 76 acquisitions worldwide since 1981.

Moody’s said the non-life industry is now benefiting from hardening premium rates. “QBE’s recent results have shown this fact. However, QBE in its current form and size has so far been untested in a market downturn. Furthermore, it has expanded into longer tail, riskier lines of business, especially through its growth into the Lloyd’s and London markets. In a deteriorating environment, this situation could raise its susceptibility to possible losses, capital strains and higher financial leverage.”

But it recognised the group’s “conservative and robust risk management practices” and the fact that QBE “generally maintains low retentions, a situation which somewhat offsets the higher risks evident within its portfolio”.

“Additionally, it displays a low investment risk through its limited exposure to equities and its emphasis on short duration fixed interest stocks.”