SINGAPORE--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” of New Zealand Medical Professionals Limited (NZMPL) (New Zealand). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect NZMPL’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 (ERM).
NZMPL’s balance sheet strength is underpinned by its risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), which remains at the strongest level. In addition, the balance sheet is supported by the reinsurance program placed with a highly rated counterparty, which is designed to protect NZMPL from exposure to elevated claims. However, an offsetting factor to the balance sheet strength assessment is the company’s small absolute capital base, which increases the sensitivity of capital adequacy to shock events. In addition, AM Best considers the company to have limited financial flexibility, with a dependence on shareholders for financial support, if needed. Prospective risk-adjusted capitalization also is dependent on NZMPL’s ability to retain earnings, which is driven by its underwriting performance and investment income, as well as level of dividend distribution.
AM Best views NZMPL’s operating performance as adequate, as evidenced by a five-year average return on equity ratio of 11.2% (fiscal-years 2015-2019). NZMPL has a track record of positive earnings, driven by its sound underwriting performance and stable investment returns. However, the company’s underwriting performance deteriorated in fiscal-years 2018 and 2019 due to adverse claims experience and higher expenses, with the combined ratio surpassing 100% in both years. In response, several remedial actions, including rate adjustments, have been implemented to aid the improvement of underwriting performance over the near term. While strong investment income has provided an offset to lower underwriting results over the past several years, the recent severe volatility of global financial markets is likely to result in lower investment income over the near term.
AM Best views NZMPL’s business profile as limited. The company is a small and niche insurer in New Zealand that focuses on providing medical indemnity insurance to medical practitioners and health professionals. The company’s claims consist largely of legal fees, as most medical injury costs are covered by the Accident Compensation Corporation in New Zealand. As a monoline insurer that operates solely in one country, the company has limited product and geographical diversification. NZMPL’s access to new business is supported by its affiliation with the New Zealand Resident Doctors’ Association.
NZMPL’s ERM is viewed as appropriate given the size and complexity of its operations. NZMPL has demonstrated an improved ability to identify and mitigate its key risk exposures over the past two years. NZMPL has moderate exposure to operational risks, as it has outsourced most of its operations to third-party service providers. However, this risk is mitigated partially through a selection of high quality providers and contract arrangements to ensure the continuity of services.
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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