SINGAPORE--(BUSINESS WIRE)--AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Ansvar Insurance Limited (Ansvar) (Australia).
The Credit Ratings (ratings) reflect Ansvar’s balance sheet strength, which AM Best categorises as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. In addition, Ansvar’s ratings factor in rating enhancement from Ecclesiastical Insurance Office plc (EIO).
The negative outlooks reflect recent deterioration in the company’s key underwriting and operating performance metrics, driven by unfavourable underwriting results due to reserve strengthening related to liability exposures for physical and sexual abuse (PSA) claims, discount rate movements and several catastrophe events. Ansvar reported a return-on-equity ratio of negative 4.5% for 2019, a notable deterioration from its five-year average of 5.1% (2014-2018). Whilst the combined ratio improved in 2017 and 2018, with the company reporting technical profits in both years, technical performance deteriorated in 2019 and into the first quarter of 2020. Financial market volatility further strained operating performance in the first quarter of 2020.
Ansvar’s balance sheet strength is underpinned by risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which was at the strongest level in 2019, and is expected to remain at least at a very strong level over the medium term. The company has a low-risk investment portfolio, with assets invested in cash and high-grade fixed-interest securities. Partially offsetting factors in the balance sheet strength assessment include Ansvar’s modest capital base relative to the product risk of its insurance portfolio, as well as its high reinsurance dependence for its property insurance.
Ansvar is a small niche insurer that provides general insurance products to its target customer groups in Australia, including care, community, faith, education and property owners. Its core product offerings are commercial property and casualty. Whilst Ansvar has a long-established presence in its niche segments in which it leverages its strong expertise and reputation, this advantage is offset somewhat by the company’s limited control over distribution. This is due to its reliance on non-affiliated intermediary channels, as well as strong competitive pressures in the Australian general insurance market.
Ansvar’s ratings incorporate rating enhancement from EIO, a U.K.-based insurance group that specialises in providing commercial insurance to the faith, heritage, charity, education and real estate markets. The rating enhancement reflects Ansvar’s integration with the group’s operations and strategic contribution in terms of value proposition. In addition, Ansvar receives explicit reinsurance support from EIO, including a shared global catastrophe excess of loss program and a newly implemented intra-group PSA reinsurance cover protecting Ansvar against adverse development in this 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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