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 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.
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