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” (Excellent) 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).

The company’s balance sheet strength assessment is underpinned by its risk-adjusted capitalisation being at the strongest level in fiscal year 2021, as measured by Best’s Capital Adequacy Ratio (BCAR), with the expectation that it will remain at the same level over the medium term. In addition, FMGIL is considered to have a comprehensive reinsurance programme that provides protection against very high-severity modelled catastrophe events in New Zealand. AM Best views the company’s investment portfolio to be of moderate risk with a focus on cash and high-quality fixed income securities, albeit with some exposure to equities. A partially offsetting balance sheet strength 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 8.4% (fiscal years 2017-2021). Operating results over this period were largely driven by robust investment returns. Although the company’s investment performance in fiscal year 2020 was affected adversely by financial market volatility driven by the COVID-19 pandemic, the investment result improved significantly in fiscal year 2021, arising from the rebound of equity markets. The company has historically experienced some volatility in its underwriting performance 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, largely due to loss ratio improvements arising from management actions. For the first nine months of fiscal year 2022, the company has continued to report positive operating and underwriting results. Prospectively, AM Best expects a robust pricing strategy and positive investment returns to support the maintenance of 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 approximately 6% of the overall non-life segment, based on 2021 gross premiums written (GPW). FMGIL has 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. Although FMGIL operates solely 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 to spread its insured risks across the country. FMGIL’s recent GPW growth remains favourable despite economic disruption related to the COVID-19 pandemic, supported in part by its continued high client retention.

Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

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