Ratings agency A.M. Best has affirmed Provident Insurance Corporation Limited’s financial strength rating of B++ (Good) and its long-term issuer credit rating of “bbb.” The outlook of these ratings is stable.
According to A.M Best, the ratings reflect Provident Insurance’s adequate balance sheet strength, operating performance, limited business profile and appropriate enterprise risk management (ERM).
Following receipt of regulatory approval from the Reserve Bank of New Zealand (RBNZ) on July 23, Provident Insurance should complete its acquisition of the non-life business of Co-op Insurance NZ this August. Provident Insurance’s risk-adjusted capitalization for financial year-end 2019 is forecast to be at a strong level. In addition, A.M. Best expects the full retention of robust operating profits over the next three years (2019-2021) to bolster available capital and offset forecast growth in underwriting risks.
A.M Best noted Provident Insurance’s operating performance has been hampered by its start-up nature and, in particular, its high-operating expenses relative to earned premiums. The company has also reported consistently strong loss ratio experience on its core portfolio of mechanical breakdown insurance and credit contract indemnity product.
While the Co-op Insurance NZ acquisition is expected to drive robust operating profits for Provident Insurance over the next three years, A.M Best said a level of execution risk may arise as it undergoes the integration of the acquired business. This includes new product types and policy variants.
A.M. Best added positive rating movements are unlikely in the near term. However, negative rating pressure could arise from a weakening of Provident Insurance’s risk-adjusted capitalization, for example, due to weaker-than-expected performance from the company’s existing portfolio or the acquired Co-op Insurance NZ business.