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FOR IMMEDIATE RELEASE
HONG KONG - APRIL 18, 2011 12:00 AM (EDT)
A.M. Best Co. has affirmed the financial strength rating of B+ (Good) and the issuer credit rating of "bbb-" of Pacific International Insurance Limited (PII) (New Zealand). The outlook for both ratings is positive.
The ratings reflect PII's good risk-adjusted capitalization, consistent operating profitability and corresponding surplus accumulation.
PII's risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), strengthened in 2010, reflecting the company's underwriting profitability for the year. The increase in BCAR was dampened by an increase in asset risks associated with shareholders' loans. PII's risk-adjusted capitalization is projected to increase moderately in the next few years.
The company's operating profitability was supported by a stable stream of investment income, although this decreased substantially in 2010 due to the lower interest rate environment. A focus on stronger underwriting as well as on claims settlement rather than litigation halted the negative slide in technical income, and PII enjoyed a strong profit in 2010. PII's capital and surplus has increased by 85% since 2006, while gross premiums written generally have been declining, leading to an improved risk-adjusted capitalization over the past five years.
Offsetting rating factors are the company's volatile underwriting results and small, relatively long-tailed underwriting book.
PII's underwriting results fluctuated from a loss of AUD 346,000 to a profit of AUD 5.3 million in the past five years. The company's tightened underwriting margin reflects a higher claims trend from its indemnity business, while its expense ratio has been increasing due to lower premium volumes and higher compliance costs.
Having a short operating history means that losses may not be fully developed, while a small and specialized underwriting book indicates possible volatile underwriting results. As observed in PII's 2008 and 2009 underwriting result, the small and specialized underwriting book gives rise to unforeseen underwriting volatility embedded in the company's book of business. As losses from past year business may not have fully developed, the company's ultimate profitability remains uncertain.
The principal methodology used in determining these ratings is Best's Credit Rating Methodology - Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best's rating process and highlights the different rating criteria employed. Additional key criteria utilized include: "Risk Management and the Rating Process for Insurance Companies." Methodologies can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.