SINGAPORE--(BUSINESS WIRE)--AM Best has removed from under review with developing implications and affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” of Pacific International Insurance Pty Limited (Pacific) (Australia). The outlook assigned to these Credit Ratings (ratings) is stable.
These ratings were placed under review with developing implications in April 2019 following notification to AM Best of a material change in Pacific’s business plans and prospective scope of operations. Historically, Pacific operated as a niche insurer underwriting principally general liability and professional indemnity products for the pest control and building inspection industries in Australia and New Zealand. However, following its acquisition in 2018 by Badger International (Pty) Ltd (Badger), an insurance group domiciled in the Republic of South Africa, Pacific recently acquired the renewal rights to a sizeable portfolio of existing motor business in Australia, distributed by affiliated underwriting agencies of the Badger group. These rating actions follow the conclusion of AM Best’s assessment of the impact of this strategic shift on the credit rating fundamentals of Pacific.
The ratings reflect Pacific’s balance sheet strength, which AM Best categorizes as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM). These ratings also factor in a neutral holding company impact from Pacific’s ultimate ownership by the Badger group.
Pacific’s balance sheet strength assessment is underpinned by risk-adjusted capitalization, which is projected to be at least at a very strong level over the medium term, as measured by Best’s Capital Adequacy Ratio (BCAR). Pacific has received a series of capital injections in 2019 to support the change in operational scope and associated increasing capital requirements arising from the incoming motor portfolio as it is underwritten at renewal by Pacific. Despite these capital injections, the company’s risk-adjusted capitalization remains sensitive to a number of factors, including changes in underlying business plan assumptions for future business volumes and underwriting performance. AM Best views the company’s moderate level of reinsurance dependence as a partially offsetting factor to the balance sheet strength assessment.
The company historically has demonstrated a track record of generating operating profits, driven by favorable loss experience from its traditional general liability and professional indemnity portfolios, albeit with total earnings constrained by high expense ratios as a result of its service model and limited operational scale as a niche insurer. AM Best views the company’s operating performance as adequate, with the expectation of positive operating performance over the medium term, although it remains subject to execution risk. AM Best expects Pacific’s prospective operating performance to be supported by a lower operating expense ratio as increased operational scale arising from the new motor business drives greater operational and expense efficiencies. At the same time, given that the portfolio is expected to be weighted increasingly to comprehensive motor business, higher loss ratios are anticipated going forward when compared with the loss experience of the company’s general liability and professional indemnity segment.
AM Best views Pacific’s business profile as limited. While the company has operated as a small niche liability insurer to date, the aforementioned strategic change is expected to lead to increased operational scale and better product line diversification over time. Notwithstanding this, AM Best expects the company to remain a modest-sized player in the Australian and New Zealand markets.
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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