Fitch Affirms QBE Lenders' Mortgage Insurance at 'AA-'/Stable

(The following statement was released by the rating agency)SYDNEY/SINGAPORE, August 26 (Fitch) Fitch Ratings has affirmed Australian-based QBE Lenders' Mortgage Insurance Limited's (QBELMI) Insurer Financial Strength (IFS) Rating at 'AA-'. The Outlook is Stable. KEY RATING DRIVERSQBELMI's rating is underpinned by a robust standalone credit profile. The company operates under a strong regulatory capital regime that includes high minimum regulatory capital requirements. Fitch believes segregation exists between QBELMI and its ultimate parent QBE Insurance Group Limited (QBE, main subsidiaries' IFS: A+/Stable) due to regulatory ring-fencing, and QBELMI's limited reliance on QBE for financial support.QBELMI holds a major position in a niche market that is supported by high barriers to entry. We expect absolute profit levels to fall due to continued regulatory actions in the residential mortgage market and the transfer of inforce risk via internal reinsurance. However, high regulatory requirements, resilient customer relationships and ongoing use of LMI as a low-cost risk transfer provide support for the sector.QBELMI's coverage of its regulatory prescribed capital amount was a strong 1.59x at end-2015 (1.48x after dividends). Historically solid operating performances and no debt enhance financial flexibility, and internally generated capital is able to support growth if required. The company's profitability and underwriting performances have been consistently strong. Average pre-tax operating ROA and ROAE was 12% and 15%, respectively, in the five years to end-2015, while its average loss and combined ratios over this period was a very low 14% and 39%, respectively.The operating environment is stable and the Australian economy remains relatively sound despite below-trend growth. Wage growth has been falling but the unemployment rate has been steady and was 5.8% in June 2016. Household leverage is high, although conservative underwriting has resulted in mortgage debt concentrated in higher-income households, with better debt-servicing ability. RATING SENSITIVITIESTriggers for a downgrade: A severe deterioration in the operating environment as a result of rising unemployment and other macroeconomic factors remains the most serious threat to the ratings of QBELMI. However, Fitch's base case is that this is unlikely and is forecasting a relatively solid economic performance in coming years.Coverage of QBELMI's regulatory prescribed capital amount falling below 1.4x together with a marked deterioration in the company's underwriting performance could result in a downgrade.A downgrade of QBE's ratings could result in a downgrade of QBELMI's rating despite limited financial reliance on the group. Fitch would not typically rate a group member more than one to three notches above the assessment of the group.Triggers for an upgrade: Unlikely as QBELMI is unable to achieve a higher standalone rating based on its monoline profile. An upgrade would require an upgrade of the group's rating.Contact: Primary AnalystJohn BirchDirector+61 2 8256 0345Fitch Australia Pty LtdLevel 15, 77 King Street, Sydney, NSW 2000Secondary AnalystSiew Wai Wan Senior Director+65 6796 7217Committee ChairpersonFederico FaccioSenior Director+44 20 3530 1394Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com.Additional information is available on www.fitchratings.comApplicable Criteria Insurance Rating Methodology (pub. 17 May 2016)https://www.fitchratings.com/site/re/881564Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr _id=1010837Solicitation Status https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1010837Endorsement Policy https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&det ail=31ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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