SINGAPORE--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of Kiwi Insurance Limited (Kiwi Insurance) (New Zealand). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Kiwi Insurance’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management. In addition, the ratings factor in a neutral impact from the company’s majority ownership by New Zealand Post Limited (NZ Post), which is a state-owned enterprise in New Zealand.
Kiwi Insurance’s balance sheet strength assessment is underpinned by its risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which remains at the strongest level. This reflects the company’s moderate underwriting leverage and conservative investment allocation. During fiscal year 2020, the company reallocated a portion of its investment portfolio to fixed income securities from cash and term deposits. Despite this change in investment strategy, the company’s bond holdings are typically of high credit quality, and AM Best views the overall investment portfolio as conservative. Over the medium term, AM Best expects full earnings retention to support the company’s business initiatives. A partially offsetting balance sheet factor is Kiwi Insurance’s modest absolute capital base, which increases the sensitivity of capital adequacy to stress scenarios, as well as to changes in future performance and dividend payments.
AM Best considers Kiwi Insurance’s operating performance to be adequate. Despite a moderate level of volatility during the past five years, the company achieved a weighted average return-on-equity ratio of 10% over the period (fiscal years 2016-2020). Overall earnings during this period reflect a combination of favourable underwriting performance, coupled with solid investment returns. For fiscal year 2020, operating results weakened compared with the five-year average, driven mainly by higher net claims incurred during the first half of the year. In response, the company has implemented pricing increases for certain affected products. Prospectively, AM Best expects a robust pricing strategy and controlled expense management to support the maintenance of adequate operating performance over the medium term.
AM Best views Kiwi Insurance’s business profile as neutral. The company is a small-sized insurer in New Zealand’s life insurance industry, with a market share of less than 1%, based on 2020 gross premiums written. Despite this, the company’s business profile assessment factors in its strong affiliated distribution channels, which provide Kiwi Insurance a key competitive advantage. The company’s parent, NZ Post, and its sister company, Kiwibank Limited (Kiwibank), have extensive nationwide branch networks that support the distribution of Kiwi Insurance’s products. In addition, as part of the NZ Post group, Kiwi Insurance benefits from cross-selling opportunities, controlled acquisition costs and access to shared group resources. AM Best notes that competitive market conditions persist in the New Zealand life insurance sector, and Kiwi Insurance’s revenues may be challenged over the medium term due to a weaker sales environment as a result of the economic uncertainty related to the COVID-19 pandemic, as well as the restructuring of Kiwibank and NZ Post’s physical branch network.
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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