SINGAPORE--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Police Health Plan Limited (PHP) (New Zealand). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect PHP’s balance sheet strength, which AM Best categorises as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
PHP’s balance sheet strength assessment is underpinned by its risk-adjusted capitalisation that remains at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). This reflects its moderate underwriting leverage and conservative investment allocation. As a not-for-profit insurer, PHP has no dividend commitments, with subsequent full retention of earnings; however, AM Best considers financial flexibility to be limited. An offsetting balance sheet factor is the company’s modest-sized absolute capital base, which increases the sensitivity of capital adequacy to stress scenarios or fluctuations in performance.
PHP has a track record of adequate operating performance, as demonstrated by a five-year average return-on-equity ratio of 7.8% (fiscal years 2015-2019), albeit with a moderate level of volatility over this period. PHP benefits from a highly efficient cost structure that allows it to offer competitive health coverage and premiums to its members. AM Best notes that PHP’s overall profit margins have declined in recent years due to the not-for-profit insurer’s strategy to achieve break-even operating results. Notwithstanding this, PHP has continued to report positive operating earnings, driven by robust investment returns. Prospectively, AM Best expects PHP to maintain adequate operating results, supported by investment returns and its demonstrated ability to adjust premium rates rapidly in response to deterioration in claims experience. While the public healthcare system in New Zealand is responsible for the pandemic response to Covid-19, AM Best does expect a level of volatility in PHP’s prospective loss experience. For fiscal year 2020, claims volumes are expected to fall from the deferral of elective surgeries during the country’s lockdown period, followed by a subsequent catch up in claims activity over the coming fiscal periods.
PHP is a not-for-profit organisation that provides health insurance exclusively to current and former members of the New Zealand police force and their families. Despite having an overall market share of less than 3% in New Zealand’s health insurance market, the company’s business profile assessment factors in its high penetration rate within the police force and its close integration with its ultimate parent, the New Zealand Police Association, which gives rise to synergy and efficiency benefits. PHP has preferential access to its member base, benefits from low distribution costs and shares overhead with the broader group. Despite challenging market conditions, its membership has grown steadily in recent years due to government initiatives aimed at expanding the police force.
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