SINGAPORE--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of The Hollard Insurance Company Pty Ltd (HIC) (Australia). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect HIC’s balance sheet strength, which AM Best categorises as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The company’s balance sheet strength assessment is underpinned by its unconsolidated risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which was at the very strong level in fiscal-year 2020 and is expected to remain at least at this level prospectively. During fiscal-year 2020 and for the first six months of 2021, the company has set aside provisions for potential COVID-19 related claims arising predominantly from business interruption coverages, which remain subject to a high level of uncertainty given the ongoing legal proceedings surrounding these policy coverages in Australia. Despite this, HIC has a track record of financial flexibility and shareholder support, with recent capital injections having helped bolster capital adequacy and offset capital consumption arising from the aforementioned COVID-19 reserve provisioning.
Other balance sheet considerations include the company’s reliance on third-party reinsurance and its exposure to illiquid investments including equity holdings in affiliated underwriting agencies. AM Best’s balance sheet strength analysis also incorporates a neutral holding company impact following an assessment of consolidated risk-adjusted capitalisation at HIC’s immediate parent, Hollard Holdings Australia Pty Ltd. (HHA).
AM Best views HIC’s operating performance as adequate, with an average return-on-equity ratio of 4.6% (fiscal-years 2016-2020) on an unconsolidated basis. The company reported an underwriting loss and a combined ratio of 102.1% in fiscal-year 2020 as a result of COVID-19 related reserve provisioning; however, its combined ratio between 2016 and 2019 had exhibited an improving trend attributable to a stable loss ratio and expense ratio improvements. Prospectively, AM Best expects future revisions of COVID-19 related reserves to be a key driver of both technical and operating results over the near term. As HIC prepares financial statements on an unconsolidated basis, AM Best has considered HHA’s consolidated performance as part of the operating performance assessment. HHA consolidates the operations of HIC, and all its controlled strategic investments in underwriting agencies.
AM Best assesses HIC’s business profile as neutral. The company is one of the top 10 non-life insurers in Australia based on gross written premiums, albeit occupying a modest market share of 3% in 2020. HIC maintains a strong market position in certain niche segments, including the pet insurance sector. The company has recorded robust premium growth over the past 10 years, supported by a diversified network of distribution partners and affiliated underwriting agencies in Australia and New Zealand.
AM Best considers HIC’s ERM as appropriate given the size and complexity of the company’s operations. As a result of HIC’s rapid expansion over recent years, the company is engaged in ongoing strengthening of its risk management capabilities in line with increased operational scale and risk profile.
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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