HONG KONG--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” of Pacific International Insurance Pty Limited (Pacific) (Australia). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Pacific’s balance sheet strength, which A.M. Best categorizes as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.
Pacific’s strong balance sheet assessment is due in part to its low underwriting leverage and conservative investment portfolio. Given the volume of risks that Pacific currently writes and retains, the capital required to support the company’s current book of business is relatively modest. In addition, Pacific continues to conservatively invest its technical and shareholders’ funds, with cash and term deposits making up the entire investment portfolio. Altogether, these factors contribute to the company’s strong balance sheet strength assessment.
Despite soft commercial pricing conditions in recent years, Pacific has generated operating profits over the past five years, driven mainly by the favorable claims experience of its product offerings and a steady stream of interest income. The major overhang on operating performance has been the company’s high expense ratio, stemming from its high service model and its small size as a niche insurer. Nevertheless, A.M. Best believes that as the group continues to gain operational efficiencies, its operating results will remain positive and gradually improve over time.
Pacific is a small, niche insurer that underwrites insurance products for the weed, pest control and building industries in Australia and New Zealand. Its core products are generally quite profitable, with favorable claims experience and a high underwriting margin. However, Pacific’s limited product offerings and high expense ratio have constrained its business profile assessment.
Given its status as a small and stable insurer within a niche segment, Pacific’s risk profile shows high business concentration risk. Pacific’s risk management capabilities are considered to be aligned appropriately with its risk profile, which is supported by the company’s low product and investment risk profile, as well as by various strategic initiatives to increase business volumes and broaden its policyholder base.
The stable outlooks reflect A.M. Best’s expectation that Pacific will maintain positive operating results, supported by stable revenue growth, low claims ratios and an expense ratio that is expected to decline gradually over time. Negative rating actions could occur if there is significant deterioration in Pacific’s risk-adjusted capitalization due to unexpected capital repatriation, or if its profitability falls below A.M. Best’s expectation due to competitive pressures or multiple large claims.
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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