SINGAPORE--(BUSINESS WIRE)--A.M. Best has downgraded the Long-Term Issuer Credit Rating to “bbb” from “bbb+” and affirmed the Financial Strength Rating of B++ (Good) of Consumer Insurance Services Limited (CISL) (New Zealand). The outlook of these Credit Ratings (ratings) is stable.
The rating action mainly reflects a material reduction in CISL’s solvency margin level, primarily due to a significant amount of dividends paid out in the first quarter of 2018.
The ratings reflect CISL’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.
CISL’s strong balance sheet assessment is due primarily to its low underwriting leverage and conservative investment portfolio. Given the volume of risks that CISL currently underwrites and retains, the capital required to support the company’s current book of business is relatively modest. In addition, CISL continues to invest its technical and shareholders’ funds conservatively, with cash and short-term deposits making up the entire investment portfolio. Altogether, these factors contribute to the company’s strong balance sheet strength assessment.
Despite a reduced revenue base due to the company exiting the extended warranty business, CISL has generated operating profits consistently over the past five years. This was driven mainly by the favorable claims experience on its current product offerings and a steady stream of interest income. Similar to other smaller insurers, CISL's expense ratio was elevated, representing over 60% of gross premiums. Nevertheless, this is mitigated by the fact that a large portion of the costs relates to commission expenses, and CISL has shared the staff costs with its immediate parent.
CISL is a small, niche insurer that underwrites consumer protection insurance in New Zealand. Its small market share and narrow product offerings raise its business concentration risk and constrain its business profile assessment.
The stable outlooks reflect A.M. Best’s expectation that CISL 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.
Positive rating actions are unlikely in the short to medium term. Negative rating actions may occur if CISL’s local regulatory solvency margin falls below the company’s target due to a high dividend payout or if the company fails to maintain its strong operating performance. In addition, significant deterioration in its ultimate parent’s credit profile due to excessive leverage or shock from adverse macroeconomic events also could result in negative rating actions.
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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