Press Release - JANUARY 26, 2018
A.M. Best Affirms Credit Ratings of Fidelity Life Assurance Company Limited
FOR IMMEDIATE RELEASE
SINGAPORE - JANUARY 26, 2018
The ratings reflect Fidelity Life’s balance sheet strength, which A.M. Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
Fidelity Life’s balance sheet strength is underpinned by risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), which is maintained at the strongest level. Its regulatory solvency margin also has improved significantly following the recent capital injection by a new investor, New Zealand Superannuation Fund. Nevertheless, the company’s business model, which generally calls for high up-front commissions to generate new business, is highly capital-intensive to operate. This capital-intensive business model, together with the company’s dependence on reinsurance, weigh on the overall balance sheet assessment.
Fidelity Life has a track record of positive operating earnings. Nonetheless, recent profitability has been under pressure, owing largely to the impairment of intangible assets and unfavorable discount rate movements. Prospectively, A.M. Best expects operating earnings to remain positive, supported by steady revenue growth, adequate rates for its in-force portfolio and a stable stream of investment income.
Fidelity Life is the third-largest life insurer in New Zealand, with a market share of around 11% based on in-force premiums. The company also has a low to moderate product risk profile, with a majority of its in-force premium related to mortality risk; the remainder is mostly income protection and trauma. However, the company remains reliant on independent distributors to distribute its products. For certain lines of business, the company continues to face a challenging environment due to fierce competition, especially for mortality risk products.
A.M. Best views Fidelity Life’s ERM to be appropriate, based on its current size and risk profile. The company has a developed set of ERM responsibility and internal reporting commitments. Fidelity Life’s risk management capabilities are considered to be aligned appropriately with its risk profile and supported by its low product and investment risk profile, as well as a conservative reinsurance strategy.
Fidelity Life is well-positioned for its current rating level. Negative rating actions may occur if there is significant deterioration in operating performance as a result of factors such as higher-than-expected lapse rates. Additionally, downward rating pressure could occur 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. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.
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