HONG KONG--(BUSINESS WIRE)--A.M. Best Asia-Pacific Limited has affirmed the financial strength rating of A (Excellent) and issuer credit rating of “a” of Farmers’ Mutual Group (FMG) and FMG Insurance Limited (FMGIL) (both domiciled in New Zealand). The outlook for all ratings is stable.
The ratings of FMG and FMGIL (the group) reflect their mutual background, strong risk-adjusted capitalization and business profile.
The mutual status of the group has helped to fully retain its earnings over the past years as well as build up a capital buffer. This has helped to absorb volatility in the group’s capital requirements. The group’s risk-adjusted capitalization strengthened in the 12 months to March 31, 2013 and remains strong for its ratings. Reinsurance cost as a proportion of gross premiums remained stable subsequent to the Christchurch earthquakes, putting the group in a good position to benefit from the hardening premium environment. The group’s direct insurance distribution network enables it to distribute third party underwritten products alongside self-underwritten products. The fee income from this helps the group to sustain its relatively high combined ratio target.
Offsetting rating factors include potentially slower risk-adjusted capital growth and reliance on investment income.
Given the group’s mutual status, underwriting profitability is expected to normalize to lower levels after a good 2013, while at the same time, premium growth momentum is expected to be maintained. As a result, growth in underwriting risks could outpace capital growth. With the exception of 2013, investment results have driven the group’s overall profitability and capital growth over the past years. Lower than budgeted investment results could cause negative overall earnings. However, the group’s intention to grow its fee business could assist in mitigating this risk.
The group is well placed for its current ratings. A material decrease in its risk-adjusted capitalization could result in downward pressure on the ratings.
The methodology used in determining these interactive ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Ratings are communicated to rated entities prior to publication, and unless stated otherwise, the ratings were not amended subsequent to that communication.
A.M. Best Asia-Pacific Limited is a subsidiary of A.M. Best Company. A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
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