A.M. Best Affirms Credit Ratings of Provident Insurance Corporation Limited

SINGAPORE--()--A.M. Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” of Provident Insurance Corporation Limited (PICL) (New Zealand). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect PICL’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 (ERM).

The company’s balance sheet strength assessment is underpinned by risk-adjusted capitalization that A.M. Best expects to be managed to at least a strong level over the medium term, as measured by Best’s Capital Adequacy Ratio (BCAR). Following receipt of regulatory approval from the Reserve Bank of New Zealand on July 23, 2018, PICL should complete its acquisition of the non-life business of Credit Union Insurance Limited (trading as the Co-op Insurance NZ) in August 2018. Despite this transaction driving a material increase in net required capital, PICL’s risk-adjusted capitalization for financial year-end 2019 is forecast to be at a strong level. In addition, A.M. Best expects the full retention of robust operating profits over the next three years (2019-2021) to bolster available capital and offset forecast growth in underwriting risks.

PICL’s operating performance since inception has been hampered by its start-up nature and in particular its high operating expenses relative to earned premiums. However, the company has reported consistently strong loss ratio experience on its core portfolio of mechanical breakdown insurance and credit contract indemnity products. Modest operating profits were reported in 2017 and 2018, with the additional business generated by the Co-op Insurance NZ acquisition expected to further support a reduction in PICL’s expense ratio in 2019. Consequently, the company is expected to report strong combined ratios and robust operating profits over the next three years (2019-2021).

A.M. Best views PICL’s business profile as limited given its relatively small scale of operations, and limited product and geographic diversification in New Zealand. The company’s ERM is assessed as appropriate. While the scope and profile of PICL’s key risks will likely increase as a result of the Co-op Insurance NZ acquisition, A.M. Best expects risk management capability to remain adequate relative to the size and complexity of the company’s operations. A level of execution risk does, however, arise as PICL undergoes the integration of the acquired business, which includes new product types and policy variants.

Positive rating movements are unlikely in the near term. However, negative rating pressure could arise from a weakening of PICL’s risk-adjusted capitalization, for example, due to weaker-than-expected performance from the company’s existing portfolio or the acquired Co-op Insurance NZ business.

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.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

Contacts

A.M. Best
Myles Gould
Associate Director, Analytics
+65 6303 5020

myles.gould@ambest.com
or
Chi Yeung Lok
Director, Analytics
+65 6303 5016

chi-yeung.lok@ambest.com
or
Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159

christopher.sharkey@ambest.com
or
Jim Peavy
Director, Public Relations
+1 908 439 2200, ext. 5644

james.peavy@ambest.com

Contacts

A.M. Best
Myles Gould
Associate Director, Analytics
+65 6303 5020

myles.gould@ambest.com
or
Chi Yeung Lok
Director, Analytics
+65 6303 5016

chi-yeung.lok@ambest.com
or
Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159

christopher.sharkey@ambest.com
or
Jim Peavy
Director, Public Relations
+1 908 439 2200, ext. 5644

james.peavy@ambest.com