A.M. Best has affirmed the “A” (Excellent) Financial Strength Rating and “a” Long-Term Issuer Credit Rating of Wellington-based FMG Insurance Limited (FMGIL), with a stable outlook.
According to the global ratings agency, FMGIL’s ratings were a reflection of its “strong risk-adjusted capitalization, consistently positive operating performance, and well-established profile in the rural sector of New Zealand’s general insurance market; as well as its “low underwriting leverage, high-quality investment portfolio and direct distribution network capability.”
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The company has lower and less volatile loss ratios compared with industry averages over the past several years due to a combination of two factors: its focus on the rural market, which allowed the company to spread its insured risk widely across the country; and its continuous engagement in loss prevention programs, such as providing risk advice services to policyholders, A.M. Best said.
Offsetting FMGIL’s positive ratings factor is its frequent exposure to natural peril events. Its focus in the rural sector has made the company’s underwriting results more sensitive to the impacts of collective losses from less severe but more frequent events, often weather-related. It is also expected that FMGIL’s near-term earning results could suffer, primarily due to the impacts of the November Kaikoura quakes, the ratings agency said.
Another offsetting ratings factor is FMGIL’s high dependence on retained earnings to support its growth and to absorb operating losses. This risk is partially mitigated by the group’s excess liquid assets and prudent capital management policy.
A.M. Best said a positive ratings movement may occur if the rural insurer can reach its underwriting profits goals while maintaining its strong risk-adjusted capitalization. Negative rating actions could occur, on the other hand, if the company experiences a significant deterioration in its risk-adjusted capitalization as a result of several catastrophe event losses.
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