SINGAPORE--(BUSINESS WIRE)--A.M. Best has affirmed the financial strength rating of B+ (Good) and the issuer credit rating of “bbb-” of DPL Insurance Limited (DPL) (New Zealand). The outlook for both ratings is stable.
The ratings reflect DPL’s adequate capitalization, favorable claim experiences and high return on assets.
Based on Best’s Capital Adequacy Ratio (BCAR), DPL’s capitalization remains at an adequate level to support its assets and underwriting risk. With an average claim ratio of approximately 30%, loss activities associated with DPL’s book of business have been relatively mild, which is typical of the type of insurance contracts that DPL writes. In addition, the company continues to maintain a diversified book of reverse mortgages, which exhibits relatively low credit, market and interest risks. For many years, interest income from these reverse mortgages has been an important contributor to DPL’s operating performance, and from time to time, has offset claim-related volatility from the company’s insurance business.
The key offsetting factors are DPL’s moderate level of excess capital and high expense ratio, as well as business expansion risk.
DPL’s expense ratio remains comparatively high, stemming from the modest size of its in-force portfolio. Although the company is in the process of reducing its expense ratio by expanding into non-life insurance business, rapid expansion into a different segment in which DPL has a limited track record, exposes the company to heightened risks in pricing and reserving. If taken to a significant extent, and profits of these new product lines do not emerge as expected, this could adversely affect DPL’s overall financial condition.
While DPL has continued to demonstrate strong growth in the sales of its motor vehicle insurance policies, negative rating movement could occur if DPL fails to achieve its target claim ratios for these new product lines. In addition, DPL’s ratings may experience downward pressure if there is any significant deterioration in the consolidated interest coverage ratio or consolidated debt-to-tangible-capital ratio of its ultimate parent.
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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