SINGAPORE--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Foundation Life (NZ) Limited (FLNZ) (New Zealand). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect FLNZ’s balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.
The company’s balance sheet strength assessment is underpinned by risk-adjusted capitalization that was at the strongest level as of fiscal year-end 2018, as measured by Best’s Capital Adequacy Ratio (BCAR). A partially offsetting balance sheet factor remains the company’s moderate-sized absolute capital base, which exposes capital adequacy to volatility in the event of stressed scenarios, including sudden and severe movements in interest rates. The balance sheet assessment also factors in a neutral holding company assessment, following a review of Foundation Life (NZ) Holdings Limited (FLNZH), which owns 100% of FLNZ. While AM Best views the financial leverage of FLNZH as elevated and interest payments historically have been covered by the upstreaming of earnings from FLNZ, any inability to continue to provide such support is not expected to result in pressure from the parent or the ultimate shareholders.
FLNZ has a track record of reporting adequate operating performance, with post-tax profits reported in each of the past five years (fiscal-years 2014-2018). Despite this, dampened earnings were recorded over the past two years, driven by increasing costs associated with Project Scholar (a process aimed at developing a scheme of arrangement proposal for policyholders) and reducing economies of scale, as the company’s business continues to diminish in size.
AM Best views the company’s business profile as limited given its position as a run-off life insurer and its moderate scale of operations in New Zealand. The company is at an advanced stage of developing a scheme of arrangement proposal for its policyholders, as part of Project Scholar. This would see existing FLNZ policyholders offered a cash buyout option, replacement cover from another New Zealand life insurer, or a combination of both. The proposed scheme remains subject to internal, regulatory, legal and policyholder approvals. If successfully implemented, FLNZ is expected to cease insurance activities.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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