SINGAPORE--(BUSINESS WIRE)--AM Best has revised the outlooks to positive from stable and affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” of DPL Insurance Limited (DPL) (New Zealand).
The ratings reflect DPL’s balance sheet strength, which AM Best categorizes as adequate, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. The ratings also factor in a neutral impact from the company’s ultimate ownership by Turners Automotive Group Limited (Turners), a motor vehicle retailer and financial services group in New Zealand.
The positive outlooks reflect an improving trend in DPL’s balance sheet fundamentals, including risk-adjusted capitalization and the size of the company’s absolute capital base. These factors, coupled with AM Best’s expectation of controlled growth and robust underwriting performance over the medium term, could lead to positive rating actions.
The company’s balance sheet strength assessment is underpinned by risk-adjusted capitalization that reached the strongest level in fiscal year 2019, as measured by Best’s Capital Adequacy Ratio (BCAR). A partially offsetting balance sheet factor remains the significant volume of intangible assets created as part of the company’s acquisition of Autosure’s business in 2017; this includes goodwill items relating to the brand name and agency relationships.
DPL has a track record of adequate operating performance, as evidenced by a five-year average return on equity ratio of 6.9% (fiscal years 2015 to 2019). The company’s combined ratio improved to 96% in fiscal year 2019 (fiscal year 2018: 103%), reflecting lower vehicle repair and spare part costs, as well as the positive impact of recent product pricing adjustments. In addition, following the Autosure acquisition, the company saw a reduction in its expense ratio as a result of greater economies of scale. Going forward, AM Best expects improved underwriting performance to support a greater balance of overall earnings.
AM Best views the company’s business profile as limited given its niche and small scale of operations. In addition, DPL’s core lines of business, including mechanical breakdown insurance for motor vehicles in New Zealand, remain subject to competitive market conditions and a general slowdown in car sales. Despite this, DPL’s ownership and affiliation with its parent, Turners, which is the largest retailer of motor vehicles in New Zealand, provides good access to business and creates a valuable distribution network.
AM Best considers DPL’s approach to risk management to be appropriate given the size and complexity of its current operations. DPL also is viewed to benefit from a level of risk management oversight and governance from the Turners group.
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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