HONG KONG--(BUSINESS WIRE)--A.M. Best Co. has affirmed the financial strength rating of B++ (Good) and issuer credit rating of “bbb” of Consumer Insurance Services Limited (CISL) (New Zealand). The outlook for both ratings is stable.
The rating affirmations reflect CISL’s steady underwriting profitability, solid risk-adjusted capitalization and a prospective decrease in underwriting risk.
CISL’s net profit after tax grew by approximately 32% to NZD 2.9 million (USD 2.4 million) in fiscal year ended March 31, 2011, driven by higher net earned premiums from the amortization of unearned premiums and lower net claims. An effective consumer credit risk management platform that CISL shares with Fisher & Paykel Finance Limited (FPFL) has helped to improve the company’s loss ratio for the year. However, this still was a period in which continued high unemployment and household debt affected CISL’s consumer credit insurance market.
Consumer credit generation at FPFL, on which CISL offers insurance cover, was kept at a lower level than the year before due to tighter credit management. Underwriting risk in the near future is expected to decline, relative to fiscal year 2011, due to CISL’s decision to gradually exit the capital intensive extended warranty business.
Offsetting factors include low earnings retention, a moderate decrease in CISL’s absolute capital base and the weak credit profiles of CISL’s immediate and ultimate parents, FPFL and Fisher & Paykel Appliances Holdings Limited, respectively.
In fiscal year 2011, a high dividend payout to its parents has led to a decline in CISL’s absolute capitalization. CISL remains subject to a minimum 90% dividend payout ratio, which took effect when the company was released from the FPFL’s charging group in 2004. This has led to limited capital growth, leaving the company dependent on its parents to strengthen its capital position when needed.
The credit profiles of CISL’s parents, especially that of FPFL’s, continues to be a negative influence on CISL’s financial strength. Potential financing needs at these entities could translate into capital outflows and weaken CISL’s risk adjusted capitalization. An improvement in the parents’ credit profiles could ease the negative influence on CISL.
The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Understanding Universal BCAR”; “Rating Members of Insurance Groups”; “Assessing Country Risk”; and “Risk Management and the Rating Process for Insurance Companies.” Methodologies can be found at www.ambest.com/ratings/methodology.
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