AM Best Affirms Credit Ratings of FMG Insurance Limited

SINGAPORE--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” of FMG Insurance Limited (FMGIL) (New Zealand). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect FMGIL’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management. In addition, the ratings factor in a neutral holding company impact from the company’s 100% ownership by Farmers’ Mutual Group (FMG).

FMGIL’s balance sheet strength assessment is underpinned by its risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which AM Best expects to remain at the strongest level over the medium term. AM Best views the company’s investment portfolio as having moderate risk with a focus on cash and high-quality fixed income securities, albeit with some exposure to equities. In addition, FMGIL is considered to have a comprehensive reinsurance programme, which provides protection against very high-severity catastrophe events in New Zealand. A partially offsetting balance sheet factor is the company’s limited financial flexibility, given its ultimate ownership by FMG, a mutual organisation.

AM Best assesses FMGIL’s operating performance as adequate. The company has generated a five-year average return-on-equity ratio of 3.8% (fiscal-years 2016-2020). Operating results over this period were largely driven by robust investment returns. However, the company’s investment performance in fiscal-year 2020 was affected adversely by financial market volatility driven by the COVID-19 pandemic. The company’s five-year average combined ratio has been at a near breakeven underwriting position, mainly due to the impact of weather and earthquake events in fiscal-years 2016 and 2017. Despite this, underwriting performance has trended positively since 2018 due to loss ratio improvements arising from management actions. Prospectively, AM Best expects that a robust pricing strategy and positive investment returns will help maintain the company’s adequate operating performance.

AM Best views FMGIL’s business profile as neutral. The company benefits from its established profile as a leading rural insurer in New Zealand, despite having a relatively small market share of 5% of the overall non-life segment, based on 2020 gross premium written. FMGIL continues to exhibit a strong direct distribution business model, aided by its close relationships with customers and its ownership by FMG, which has a long history and strong brand recognition in New Zealand’s rural sector. Despite FMGIL only operating in New Zealand, its premium base is less geographically concentrated when compared with other domestic general insurers, as its focus on the rural sector helps diversify its insured risks across the country.

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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