AM Best has downgraded the Financial Strength Rating to B+ (Good) from B++ (Good) and the Long-Term Issuer Credit Rating to "bbb-" from "bbb" of Consumer Insurance Services Limited (CISL) (New Zealand). The outlook of these Credit Ratings (ratings) has been revised to stable from negative.
The ratings reflect CISL’s balance sheet strength, which AM Best categorises as adequate, as well as its adequate operating performance, very limited business profile and appropriate enterprise risk management (ERM). The ratings also factor in a neutral impact from the company’s ultimate majority ownership by FlexiGroup Limited.
The rating downgrades reflect a revision of AM Best’s assessment of CISL’s business profile to very limited from limited as a result of the company’s diminishing business profile as it continues to run off its insurance operations. The company entered into run off following the decision to cease writing new business from November 2018 and renewal business from April 2019. AM Best expects CISL’s existing policyholder obligations to run off over the period to 2024. The company’s business profile assessment also considers its small scale of operations and niche position as a provider of credit card repayment protection for New Zealand cardholder customers of its intermediate parent, FlexiGroup (New Zealand) Limited.
CISL’s balance sheet strength is underpinned by its risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which is categorised as strongest. AM Best expects capital adequacy to remain at the strongest level over the medium term, reflecting a gradual decline in underwriting risks and continued robust internal capital generation. A partially offsetting balance sheet factor is CISL’s very small absolute capital base, which increases the susceptibility of capital adequacy to volatility under stressed scenarios.
AM Best considers CISL’s operating performance to be adequate. The company reported a five-year average return-on-equity ratio of 29% (fiscal-years 2015 to 2019), albeit with moderate volatility in some years. The company’s operating results over the past five years have been driven by favourable claims experience from its sole product offering of credit card repayment protection insurance. The company’s five-year average combined ratio for fiscal-years 2015 to 2019 was 65%. Prospectively, AM Best expects CISL’s underwriting profitability to reduce, following the implementation of product coverage enhancements for all existing policyholders in September 2019. Despite these product adjustments, and the potential for increased frequency of redundancy claims as a result of the economic fall out of the COVID-19 pandemic in New Zealand, AM Best expects CISL’s underwriting and operating performance to remain at an adequate level over the run-off period.
AM Best views CISL’s ERM framework to be appropriate given the current size and complexity of its operations. AM Best continues to monitor the impact of potential regulatory challenges in relation to the conduct and culture review by New Zealand regulatory bodies, as any resulting increase in regulatory or operational risk could drive a mismatch between CISL’s risk management profile and capability.
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 media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
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