Fitch Ratings has placed New Zealand-based Credit Union Insurance Limited’s (Co-op Insurance NZ) insurer financial strength (IFS) Rating of “BBB-” (Good) on rating watch ‘negative’. The rating was previously on rating watch ‘evolving’.
According to Fitch, the rating action reflects the uncertainty surrounding the proposed sale of Co-op Insurance NZ’s entire business book to Provident Insurance Corporation, which is pending the regulatory approval of the Reserve Bank of New Zealand, as well as the risk of a weakening business franchise and generation from its credit union owner – the New Zealand Association of Credit Unions (Co-op Money NZ).
“Co-op Insurance NZ’s ratings reflect its modest business franchise and conservative investment mix,” Fitch said. “The company is a niche player in the local market with limited size and market position.
“Its capital level is commensurate with its business profile, but its small absolute capital base could leave the company more exposed to larger operational risks or unexpected changes in the external operating environment,” it added.
In FY17, Co-op Insurance NZ recorded a net loss of $340,000 due largely to an increase in frequency of claims and higher claims payment for its motor portfolio. It had an estimated net profit of $570,000 for FY18 and a regulatory capital ratio of 115% at the end of June 2018 (FYE17: 105%).
Fitch said the rating watch ‘negative’ will be resolved when the firm has sufficient information regarding the outcome of the proposed transaction and any changes in Co-op Insurance NZ’s strategic direction.
However, a negative rating action could occur if there is sustained weakness in the business franchise and generation, the ratings agency added.
