SINGAPORE--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb+” of Provident Insurance Corporation Limited (PICL) (New Zealand). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect PICL’s balance sheet strength, which AM Best categorises as adequate, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
PICL’s balance sheet strength assessment reflects its risk-adjusted capitalisation, which was at the strong level as of fiscal year-end 2020, as measured by Best’s Capital Adequacy Ratio (BCAR). Due to elevated planned underwriting growth over the medium term, AM Best expects PICL’s prospective risk-adjusted capitalisation to weaken but remain at least at the adequate level, as the company executes its strategic plan. Other balance sheet factors include the company’s conservative investment strategy, and its relatively small absolute capital base, which exposes its risk-adjusted capitalisation to potential volatility in stressed scenarios.
PICL’s operating performance has generally exhibited an improving trend since its inception in 2013, primarily driven by a favourable trend in the expense ratio due to growing economies of scale. However, in fiscal-year 2020, the company reported underwriting losses with the combined ratio increasing to 105.8% from 97.2% in the prior year. This was driven primarily by worse-than-expected loss experience of the company’s core insurance products including motor vehicle insurance (MVI) and mechanical breakdown insurance (MBI). The company has taken remedial actions to address the issue by implementing targeted rate adjustments and strengthening underwriting controls. AM Best expects successful execution of these actions to drive a positive trend in operating performance over the near to medium term, remaining supportive of the adequate assessment.
AM Best views PICL’s business profile as limited, given its relatively small scale of operations and limited geographical diversification, with all business emanating from New Zealand. The company is a niche insurer that focuses on MBI and MVI product segments, largely distributed through motor dealerships and several distribution partners across New Zealand. PICL is exposed to a moderate level of pricing risk arising from its high premium growth and its exposure to multi-year duration policies.
AM Best assesses PICL’s ERM as appropriate, given the size and the complexity of its operations. However, given the company’s increasing operational scale and widening product offerings, the scope and profile of its key risks have increased, and in response, AM Best expects PICL’s risk management capability to continue to develop and strengthen over the medium term.
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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