SINGAPORE--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb+” of Quest Insurance Group Limited (Quest) (New Zealand). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Quest’s balance sheet strength, which AM Best categorises as adequate, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. The ratings also factor in a neutral impact from the company’s ultimate majority ownership by Federal Pacific Group Limited.
Quest’s balance sheet strength is underpinned by its risk-adjusted capitalisation, which AM Best expects to remain at least at the very strong level over the medium term, as measured by Best’s Capital Adequacy Ratio (BCAR), supported by internal capital generation from positive prospective earnings. A partially offsetting balance sheet factor is the company’s small absolute capital base, which exposes risk-adjusted capitalisation to volatility in the event of stressed scenarios. In addition, the company’s balance sheet has an elevated level of exposure to affiliated and low liquidity investments.
The company has a track record of adequate operating performance, as evidenced by a five-year average return-on-equity ratio of 9.8% (fiscal-years 2015 to 2019). Recent rapid business growth and risk profile changes have resulted in an increased loss ratio over the past two years; however, technical performance has remained robust. For fiscal-year 2019, the combined ratio stood at 92%, with an increase in the loss ratio offset by an improvement in expense ratio, as compared with fiscal-year 2018. AM Best expects prospective performance to remain supportive of the adequate assessment over the medium term, driven by positive underwriting results and solid investment returns.
AM Best assesses Quest’s business profile as limited, reflecting its small market presence and relatively concentrated niche product offering, largely as a provider of mechanical breakdown insurance (MBI) in New Zealand. The company’s scale of operation has increased significantly in recent years, following the commencement of a distribution partnership with Janssen Insurance Limited, a third-party distributor of MBI in the market. In addition to increased operational scale, this diversification of distribution channel also has served to reduce Quest’s dependence on affiliates for product distribution.
AM Best assesses Quest’s ERM as appropriate given the current size and complexity of the company’s operations. Following recent business growth, the company is exposed to an elevated level of underwriting execution risk. However, this has been mitigated partially to date through adequate monitoring of underwriting performance, and a conservative approach to pricing and reserving.
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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