SINGAPORE--(BUSINESS WIRE)--A.M. Best has assigned a financial strength rating of B- (Fair) and an issuer credit rating of “bb-” to Lifetime Income Limited (LIL) (New Zealand). The outlook assigned to both ratings is stable.
LIL is a newly formed company established to provide variable annuities with guaranteed lifetime withdrawal benefits in New Zealand. LIL’s immediate parent is Retirement Income Group Limited (RIG) (New Zealand), a private insurance holding company established in December 2014 that has paid-up capital of NZD 6 million. The major shareholders of RIG include the company’s directors, as well as some private investors.
The assigned ratings mainly reflect LIL’s adequate standalone risk-adjusted capitalization and sound operating controls. In addition, the ratings incorporate a view that the company is a traditional start-up venture with no demonstrated track record of operating performance.
A.M. Best expects LIL’s standalone risk-adjusted capitalization, as evaluated by Best’s Capital Adequacy Ratio (BCAR), to be maintained at a level that fully supports the assigned ratings throughout its first five-years of operation. Despite the aggressive planned growth targets, which could result in a relatively high asset-leverage ratio, risk-adjusted capitalization is expected to remain supportive of the ratings, principally through applying hedging techniques that are assumed to be highly effective for mitigating the exposure introduced by the embedded guarantees.
Operational controls are deemed to be satisfactory. Although LIL is a newly formed company, its statements of investment policy and objectives, risk management program and hedging strategy are already in place. The company has also established a process to monitor material financial risks such as profit or loss, pricing and hedging costs at least on a monthly basis. Furthermore, valuations of policy liabilities will be carried out by an external appointed actuary, while regulatory capital requirements will be determined by another independent actuary.
The major offsetting factor in LIL’s rating assessment is the initial balance sheet capital level of its holding company, RIG, on a consolidated basis. According to the five-year business plan, RIG will likely need additional capital to support the high-growth aspirations, especially after its first two years of operation. Additionally, implementing a new product strategy entails significant execution risks and material uncertainty exists as to RIG’s future financial flexibility to raise additional funds, if needed, in a timely and cost-effective manner.
The ratings could be downgraded if its local regulatory solvency margin falls below the company’s projection provided to A.M. Best due to adverse movements in interest rates and equity markets. Additionally, LIL’s ratings may experience downward pressure if there is any significant deterioration in RIG’s consolidated risk-based capitalization, as reflected by BCAR.
Ratings are communicated to rated entities prior to publication, and unless stated otherwise, the ratings were not amended subsequent to that communication.
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