Best’s News & Research Service - January 27, 2017 01:47 PM (EST)
A.M. Best Affirms Credit Ratings of Fidelity Life Assurance Company Limited
- January 27, 2017 01:47 PM (EST)
Oldwick //BestWire// - A.M. Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Fidelity Life Assurance Company Limited (Fidelity Life) (New Zealand). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Fidelity Life’s strong risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), and favorable operating performance.
Fidelity Life’s strong risk-adjusted capitalization is reflective mainly of its highly liquid investments and conservative underwriting leverage. In addition, A.M. Best expects Fidelity Life to remain consistently profitable, due to a steady stream of earnings from its investment portfolio and the stable flow of profits from its in-force portfolio. Average return on equity was approximately 12%.
The major offsetting factor in Fidelity Life’s rating assessment was its relatively high reinsurance utilization.
While Fidelity Life ceded a larger portion of gross premiums to its reinsurers, this resulted in a smaller base of retained premium over which to spread its expenditures. Consequently, commissions and other expenses amounted to approximately 90% of net premiums. Because of this, the company’s operating results comparatively are more sensitive to unfavorable movement in lapse rates, the cost of reinsurance and operating expenses.
Fidelity Life is well-positioned for its rating level; however, significant deterioration in operating performance, or significant erosion in risk-adjusted capitalization as a result of factors such as higher-than-expected lapse rates, could place pressure on the ratings. In addition, downward rating pressure could result if the company experiences difficulties in reaching its targeted surplus.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings.
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