SINGAPORE--(BUSINESS WIRE)--AM Best has upgraded the Financial Strength Rating to B (Fair) from B- (Fair) and the Long-Term Issuer Credit Rating to “bb” from “bb-” of Lifetime Income Limited (LIL) (New Zealand). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect LIL’s balance sheet strength, which AM Best categorizes as adequate, as well as its marginal operating performance, limited business profile and marginal enterprise risk management.
The rating upgrades reflect an improvement in AM Best’s assessment of LIL’s business profile. While the company remains a new entrant to New Zealand’s life insurance market having launched its underwriting operations in 2016, it continues to execute on its initial start-up business strategy successfully. LIL’s core product offering is variable annuity (VA) products for the retirement community, which although remains in the early stage of its product life cycle in New Zealand, has demonstrated a good level of traction and growth over recent years. AM Best considers LIL’s core VA product, which includes guaranteed lifetime withdrawal benefits, to carry elevated product risk and also exposes the company to the prevailing interest rate environment. This risk is mitigated partially through the company’s ability to adjust VA product features, including guaranteed income rates. The company’s business profile assessment also considers LIL’s limited product and geographical diversification as a VA insurer that operates solely in New Zealand.
LIL’s balance sheet strength is underpinned by its risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), which is projected to be at least at a strong level over the medium term. AM Best expects LIL’s prospective capital position to be supported by ongoing, timely capital injections from the group’s shareholders to support future business growth. Offsetting balance sheet factors include the company’s marginal buffer in its regulatory solvency position and its small absolute capital base, which increases the sensitivity of its capital position to shock events and future business growth. In addition, the company is considered to have a reliance on third-party dynamic hedging to support its VA product. The ratings also factor in a neutral holding company impact from the company’s 100% ownership by Retirement Income Group Limited.
AM Best views LIL to have a limited track record of positive operating performance, and its earnings have been hampered historically by high expenses relative to the size of its premium base due to its start-up nature. Recent operating results also have been impacted by policyholder withdrawals in the fixed annuity portfolio, acquired by LIL in 2017, and the reduction in the interest rate environment in New Zealand, where rates have fallen during 2019 to historically low levels. AM Best notes that a portion of the costs associated with the investment management arising from LIL’s business are borne by an affiliated company, with the combined performance of these entities considered in assessing the underlying performance of LIL’s business portfolio.
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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