London (1) London New York Robert S. Smith Allerton G. Smith Director Senior Director Moody's Analytics UK - Insurance Capital Markets Research Group Moody's Analytics Moody's Analytics JOURNALISTS: 44 20 7772 5456 JOURNALISTS: 212-553-0376 SUBSCRIBERS: 44 20 7772 5454 SUBSCRIBERS: 212-553-1653 Moody’s Analytics affirms the A (Very Good) Continuity Opinion of Lloyd’s Syndicate 386; outlook changed to negative. LONDON, 21st July 2014 – Moody's Analytics (Moody’s) today affirmed the A (Very Good) Continuity Opinion of Lloyd's syndicate 386 (QBE Underwriting Limited) following publication of its 2013 annual results and the departure of certain senior underwriters. The outlook for the Continuity Opinion has been changed to negative. Syndicate 386 is 70% backed by QBE Insurance Group Limited and 30% backed by third party capital, with a 2014 capacity of £413m, and writes a UK and International Liability account with a strong franchise in these areas. It is run as a joint operation with the QBE Insurance Europe (QIE) company operation, with protocols in place with regard to the allocation of business between syndicate 386 and QIE. The syndicate recorded a profit of 10% of Net Premium Earned (NPE) on an annually accounted basis for 2013 on a combined ratio of 94% (including forex). Moody’s stated that, in terms of reported results, on a cross-cycle basis syndicate 386 recorded average profits of 41% of NPE for 2005 to 2013 under annual accounting. The syndicate had performed in line with the A (Very Good) peer group in terms of indicative average annual returns on capital on a cross-cycle basis and when considering more recent 5-year average returns. However, indicative annual returns on capital for 2012 and 2013 were more in line with the A- (Good) peer group. Moody’s commented that the syndicate had benefited from some exceptional underwriting conditions in the early 2000’s but that recent returns had been affected by reducing reserve releases, with investment returns also reduced in light of the current investment environment. However, Moody’s expectation was that reserve releases would continue to be material to the syndicate’s ongoing results. In terms of staff turnover, the syndicate had also recently had various senior underwriters leave to join competitors, although Moody’s view remained that the syndicate retained a good underwriting team and that the longer term impact of the departures was unlikely to be significant. Moody’s continued that it viewed the syndicate as core to QBE’s operations with QBE’s Lloyd’s operations representing c.11% of group NPW, albeit that the syndicate represented only c.3% of QBE NPW, and also had strong third party capital support, as evidenced by the syndicate’s 2013 capacity auction prices. However, with the syndicate’s 2-year average indicative annual returns on capital not in line with it’s A (Very Good) peer group and some uncertainty over the extent of the materiality of future reserve releases relative to ongoing earnings, Moody’s Analytics has changed the outlook of syndicate 386’s A (Very Good) Continuity Opinion to negative, reflecting Moody's Analytics view of relative performance and continuity prospects for the syndicate over the insurance cycle. QBE Syndicate 386 is a Non-Marine Liability syndicate backed 70% by QBE Insurance Group, which operates within the Lloyds of London insurance market. * * * © 2014 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved. CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. 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