SINGAPORE--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating of B- (Fair) and the Long-Term Issuer Credit Rating of “bb-” of Lifetime Income Limited (LIL) (New Zealand). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect LIL’s balance sheet strength, which A.M. Best categorizes as adequate, as well as its marginal operating performance, very limited business profile and marginal enterprise risk management (ERM).
Throughout its development phase, A.M. Best expects LIL to maintain a level of on-balance-sheet capital that is sufficient to support the projected business activities. Although the company has strengthened its local regulatory capital position, the solvency margin in absolute dollars remains modest relative to other life insurers rated by A.M. Best. In addition, LIL’s business plan calls for moderate reliance on dynamic hedging in the longer term as the business continues to grow.
Similar to many other start-up operations that are yet to build a supportive base of business, LIL’s historical operating performance has been pressured by low revenue paired with high fixed costs. Nevertheless, A.M. Best does not expect much volatility in the company’s operating performance, as the variable annuity (VA) product it offers has a low-risk product design and there is an appropriate hedging strategy in place.
LIL is a newly formed insurance operation that sells a very narrow range of life insurance products within New Zealand. While A.M. Best expects the company’s in-force portfolio to be profitable in the long run, the current scale of business is small, which makes it relatively more susceptible to unforeseen risks than insurers whose businesses are more established and diversified. In addition, its core product – a VA with guaranteed lifetime withdrawal benefits – is still at the introductory stage of the product life cycle in New Zealand.
LIL has an adequate ERM framework given the operation’s expected size and complexity. Nevertheless, it may take time for LIL, as a start-up life insurer, to prove that its risk management capabilities are well-aligned with its risk profile.
Positive rating actions are possible in the long term if LIL is able to demonstrate a track record of growth that allows it to generate appropriate and sustainable returns. Conversely, factors that may lead to negative rating actions include LIL’s local regulatory solvency margin falling below target due to adverse movements in interest rates or equity markets. Additionally, LIL’s ratings may experience downward pressure if its holding company’s consolidated risk-adjusted capitalization falls short of A.M. Best’s expectations.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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