SINGAPORE--(BUSINESS WIRE)--AM Best has removed from under review with negative implications and downgraded the Long-Term Issuer Credit Rating to “bb” (Fair) from “bb+” (Fair) and affirmed the Financial Strength Rating (FSR) of B (Fair) of Brightsideco Insurance Limited (Brightsideco) (New Zealand). The outlook assigned to these Credit Ratings (ratings) is stable. Concurrently, AM Best has withdrawn these ratings as the company has requested to no longer participate in AM Best’s interactive rating process following exemption by the Reserve Bank of New Zealand from the requirement to have an FSR.
These rating actions are the result of Brightsideco being placed into run-off following the cancellation of its arrangement with the New Zealand operations of Harvey Norman Holdings Limited, a large electrical goods retailer based in Australia, to distribute extended warranty insurance products. As a result, Brightsideco lacks a competitive position or the ability to alter or re-price its book of business, and, in AM Best’s view, has a weaker business profile.
The ratings reflect Brightsideco’s balance sheet strength, which AM Best assesses as adequate, as well as its marginal operating performance, very limited business profile and appropriate enterprise risk management.
Brightsideco’s balance sheet strength is underpinned by its risk-adjusted capitalisation, which AM Best expects to remain at the strongest level over the medium term, as measured by Best’s Capital Adequacy Ratio (BCAR). As insurance liabilities run off, risk-adjusted capitalisation is expected to improve further; insurance risk is projected to reduce faster than the company’s capital base. Other balance sheet considerations include the company’s very small absolute capital base, which increases its sensitivity to weaker-than-anticipated performance. Furthermore, the balance sheet strength assessment factors a negative holding company impact arising from Brightsideco’s ultimate parent, ICF Holdings Pty Ltd, following an assessment of consolidated risk-adjusted capitalisation.
Brightsideco’s insurance liabilities are expected to run off until 2029. Over the medium term, the company is expected to report small losses as the underwriting margin and investment returns are insufficient to cover its fixed-cost base. Profitability is supported by remediation measures undertaken five years ago, which are now improving the loss ratio of the insurance book of business and reducing uncertainty around projections.
AM Best views Brightsideco’s business profile as very limited, reflecting the company’s run-off status, small operational size, niche business portfolio and lack of geographic diversification. The company also is exposed to high concentration risk, as almost all of its policies were distributed through a large electrical goods retailer in New Zealand.
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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