Concerns have emerged over two letters of credit (L/Cs) held by troubled Australian insurer, QBE.

Shares in QBE lost more than a fifth of their value in December after Australia's largest insurer by premiums warned that it is vulnerable to big provisions and write-downs.

Guarantees and liabilities

The insurer's annual accounts show one L/C for US$1.36 billion and another for US$1.5 billion under its guarantees and contingent liabilities.

The first is "in support of the group's participation in Lloyd's" of London while the second is "in support of insurance provisions of controlled entities."

Lloyd's syndicates

Analysts are concerned that since QBE's reserves are already depleted, a call on the L/Cs could make life even more difficult for the insurer.

Media reports say that the US$1.3 billion for Lloyd's guarantees two of QBE's syndicates, one of which has just US$207 million in cash while the other is in negative equity.

If the syndicates are called on to meet adverse insurance claims, the L/C could be called upon should the US$207 million in cash be paid out.

Unknown quantity

The second US$1.94 billion L/C supports another QBE entity, Equator Reinsurances, which is a captive insurer domiciled in Bermuda. Its capital position is unknown.

A QBE spokesman has said that no Australian assets, belonging to either policy holders or shareholders, have been pledged to support the L/Cs.

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