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 Foundation Life (NZ) Limited (FLNZ) (New Zealand). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect FLNZ’s balance sheet strength, which A.M. Best categorizes as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM). In addition, the ratings factor in a neutral holding company assessment, following a review of Foundation Life (NZ) Holdings Limited (FLNZH), which owns 100% of FLNZ.
The company’s balance sheet strength assessment is underpinned by risk-adjusted capitalization that was at the strongest level as at year-end 2017, as measured by Best’s Capital Adequacy Ratio (BCAR). Prospectively, A.M. Best expects the gradual and controlled run-off of FLNZ’s life business to help maintain risk-adjusted capitalization at this strongest level. The neutral holding company assessment reflects A.M. Best’s view that while the financial leverage of FLNZH is elevated and interest payments historically have been covered by the upstreaming of earnings from FLNZ, any inability to continue to provide such support is not expected to result in pressure from the parent or the ultimate shareholders.
FLNZ has a track record of reporting robust operating results, albeit weaker performance was achieved in 2017 following one-off costs associated with the sale of its annuity business and lower than anticipated investment returns. Over the next three years, A.M. Best expects the performance of the company’s remaining participatory life portfolio to generate robust and stable profitability.
A.M. Best views the company’s business profile as limited given its position as a run-off life insurer and its small scale of operations. In addition, the company has limited product diversification and a concentration toward New Zealand derived business. ERM is viewed as appropriate given the size and complexity of FLNZ’s operations. Interest rate movements remain a key risk to FLNZ and continue to require robust asset liability management to adequately manage and mitigate this risk’s impact on earnings and capitalization.
Positive rating movements are unlikely at present. Negative rating actions would likely occur if there is a change in the actual or perceived pressures on FLNZ arising from its parent, FLNZH. In particular, a deterioration in FLNZ’s risk-adjusted capitalization as a result of capital extraction to support the servicing of debt obligations at the parent could result in negative rating actions. In addition, if operating performance were to fall below A.M. Best’s expectation or if a change in the future earnings capacity of the company arises, the operating performance assessment may be revised downward.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.
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