SINGAPORE--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” of Product Care (NZ) Limited (PCL) (New Zealand). The outlook of these Credit Ratings (ratings) remains negative.
PCL is an insurance company wholly owned by ICF Holdings Pty Ltd. (ICFH). ICFH is a group operating an extended warranty third-party administrative service for its clients through subsidiaries in Australia, New Zealand, Ireland, Singapore and Malaysia.
The ratings reflect PCL’s balance sheet strength, which A.M. Best categorizes as adequate, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.
The balance sheet strength assessment of adequate mainly reflects PCL’s low business net retention and moderate underwriting leverage. In addition, PCL continues to invest its technical and shareholders’ funds conservatively, with cash and term deposits making up the entire investment portfolio. Based on the types of business written, which consist only of individual risks covering electrical or mechanical breakdown, the major source of underwriting risk is the potential for a systemic failure in the products PCL offers. This risk is offset partially by the fact that PCL is reinsured heavily for all of its in-force products.
PCL’s historical claims experience suggests that its book has been profitable over the past five years, albeit on a deteriorating trend. The major strain on operating performance has been the company’s rising loss ratio, stemming from its new full-replacement extended warranty product. Management has proposed some key changes to the current product and pricing, with these details expected to be finalized over the upcoming month. A.M. Best believes that as PCL starts to remediate its underwriting portfolio, the planned profit margin for future new business will be positive, and the overall operating performance will improve gradually over time.
PCL is a monoline operation that underwrites warranty risks in New Zealand. As a niche insurer, the company captures a very small market share within its local market. PCL’s competitive advantages include a low cost structure due to shared operating expenses with its group affiliates and expertise within its core products. However, these advantages are offset by a monoline operation, its economic reliance on one partner, Harvey Norman, and the success of ICFH in maintaining its multi-layer business relationships with this partner.
Similar to other relatively small general insurers that specialize in one market, PCL’s risk profile shows high business concentration risk. Nevertheless, A.M. Best considers the company’s risk management capabilities to be aligned appropriately with its risk profile. This is supported mainly by its strong focus on improving its underwriting and pricing, as well as various initiatives to increase business volume in a profitable manner.
The negative outlooks reflect the unfavorable trend in PCL’s underwriting performance. Based on recent financial results, the company’s underwriting profitability continues to show a downward trend, due to worse-than-expected claims experience.
The outlooks could be revised to stable if the company can reverse its poor underwriting performance trend. Negative rating actions could arise if PCL’s capital position further erodes or the unfavorable earnings trend persists. Furthermore, negative rating actions could occur if ICFH’s consolidated financial performance deteriorates.
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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