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 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 assesses as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM). The ratings also factor in a neutral impact from the company’s ownership by Hollard Holdings Australia Pty Ltd (HHA).
HIC’s balance sheet strength assessment is supported by its unconsolidated risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which was at the strongest level at fiscal year-end (30 June) 2022 and is expected to deteriorate in fiscal-year 2023, largely due to net underwriting growth and a dividend paid to HHA. Risk-adjusted capitalisation is subsequently expected to improve in the medium term to the very strong level. HIC has a track record of financial flexibility and shareholder support: capital injections and hybrid debt issuances over the last 10 years that have helped bolster capital adequacy. AM Best views the company’s investment portfolio to be of moderate risk with a focus on cash, term deposits and high-quality fixed-income securities, albeit with some exposure to illiquid investments, including equity holdings in affiliated underwriting agencies.
AM Best views HIC’s operating performance as adequate, with an average return-on-equity ratio of 6.2% over fiscal-years 2018-2022 on an unconsolidated basis. The company reported a strong profit in fiscal-year 2022 of AUD 82.1 million, predominantly due to a one-off investment gain. However, in the first half of fiscal-year 2023, operating results were dampened by high claims inflation and several weather events. Prospectively, AM Best expects HIC’s underwriting profits to exhibit an upward trend over the medium term, primarily as a result of lower expense ratio and rate actions taken to support an improvement in the loss experience of its core insurance product offerings.
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, occupying a modest market share of 3-4% in 2022. The company has recorded robust premium growth over the last 10 years, supported by a diversified network of distribution partners and affiliated underwriting agencies in Australia and New Zealand. However, prospective premium growth is expected to be modest over the medium term, given the company’s strategic focus on operational efficiency and technology development. Following the acquisition of Commonwealth Insurance Limited (now renamed to Hollard Insurance Partners Limited) by HHA in September 2022, HIC remains strategically important to HHA as it contributes the bulk of the group’s revenues.
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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