SINGAPORE--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Kiwi Insurance Limited (Kiwi) (New Zealand). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Kiwi’s balance sheet strength, which A.M. Best categorizes as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
Kiwi’s balance sheet strength is supported by its solid risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). Despite a high dividend payout ratio, the company has moderate underwriting leverage and a favorable liquidity position. However, the company’s capital size is modest compared with other New Zealand life insurers.
Kiwi has a track record of favorable earnings, derived from in-force business and stable investment income. Its five-year average return on premium is more than 20%. However, its recent underwriting results have been subdued due to significant expenses and capital expenditures being incurred ahead of realized sales. As the company has generated strong premium growth consistently over the past five years, A.M. Best expects that the operation will begin to reflect economies of scale in the medium term.
As an affiliated company of New Zealand Post Limited (NZPL) and Kiwibank Limited (Kiwibank), Kiwi benefits from cross-selling opportunities, low acquisition costs and shared resources within the group. However, the life insurer has a relatively small in-force portfolio and a low penetration rate among the bank’s customer base. Kiwi transitioned from an outsourced model to an in-house operation in 2011; hence, its future success will rely on how well it can leverage its affiliates’ distribution platforms and customer bases to generate more business volume.
Kiwi has a developed risk management program based on its current size and complexity. The company has demonstrated an overall satisfactory ability to address most of its risks, primarily through adequate pricing and holding liquid assets in its investment portfolio. Therefore, A.M. Best considers Kiwi’s risk management capabilities as aligned appropriately with its risk profile.
Kiwi is well-positioned for its current rating level. Negative rating pressure may occur if its capitalization erodes significantly below its target surplus capital, or if there is material deterioration in its operating performance. In addition, negative rating pressure also could occur if there is any adverse development in the financial strength of NZPL or Kiwibank.
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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