HONG KONG--(BUSINESS WIRE)--A.M. Best Co. has affirmed the financial strength rating of B++ (Good) and issuer credit rating of “bbb” of Consumer Insurance Services Limited (CISL) (New Zealand). The outlook for both ratings is stable.
The rating affirmations reflect CISL’s solid risk-adjusted capitalization and sound operating profitability.
CISL’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR) strengthened and is mainly attributable to a reduction in net premium risk that stems from its gradual withdrawal from writing extended warranty business. The BCAR is forecasted to trend upward for the next few years as the underwriting risk continues to decline, which is in line with CISL’s running down of its warranty book of business.
For fiscal year 2012, CISL reported earnings after taxes of NZD 3.2 million (unaudited), a 9.67% uplift from the previous fiscal year’s results. CISL continued to sustain its profitable operating performance with both underwriting and investment operations contributing positive results.
Offsetting rating factors include CISL’s high dividend payout requirement, the credit profiles of CISL’s parents and lower profitability going forward.
Despite continued profitable operating results, CISL’s capability to generate internal surplus growth has been hindered by its high dividend payments as CISL remains subject to its minimum 90% dividend payment requirement. According to unaudited accounts, the dividend payout ratio is anticipated to have averaged 143% in the five years to March 31, 2012. The credit profiles of CISL’s parents continue to be a negative influence on CISL’s strength as potential financing needs at these entities could translate into capital outflows and potentially impact the company’s risk-adjusted capitalization.
While remaining profitable, CISL’s profitability is anticipated to trend lower. As the company runs off its extended warranty portfolio, CISL will have a lower net earned premium base over which it can spread its expenses.
A sustained improvement in CISL’s parent’s core operations and credit profile could lead to upward movement on the ratings. Material parental capital repatriation and a significant decrease in CISL’s risk-adjusted capitalization could put downward pressure on the ratings.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies” and “Understanding Universal BCAR.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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