CONTACTS:
FOR IMMEDIATE RELEASE
OLDWICK, N.J. - OCTOBER 03, 2008 12:00 AM (EDT)
A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and the issuer credit rating of "a-" of Ansvar Insurance Limited (Ansvar) (New Zealand). The outlook for both ratings is stable.
The ratings reflect Ansvar's strong risk-adjusted capitalization, consistent operating profitability and prudent investment strategy. The ratings also acknowledge the company's strong presence in the niche markets of faith, education and community care groups in New Zealand, primarily focusing on its commercial portfolio.
Ansvar's risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio, increased in 2007. This improvement was supported by the company's conservative underwriting leverage and consistent high retention of operating earnings. The company's net premium leverage improved to 0.68 times in 2007 from 0.80 times in 2006 due primarily to lower premium risk retention. Prospectively, higher premium accumulation is expected to gradually weaken the company's risk-adjusted capitalization. Nevertheless, A.M. Best believes that Ansvar will maintain a level of capitalization that will be supportive of its rating.
Ansvar has been consistently profitable over the past decade. Notwithstanding the deterioration in underwriting performance, with the combined ratio increasing to 108% in 2007 from 96% in 2006, the company's operating ratio was 93.0% in 2007 and averaged 79.4% over the past five years, due predominately to unanticipated large losses and a soft market condition.
Ansvar's investment yield for 2007 was 8.1%, reflecting its conservative investment portfolio mix. Approximately 53.5% of invested assets were New Zealand government bonds, 16.1% were highly rated corporate bonds and the remaining 29.2% were cash and short-term deposits.
Offsetting rating factors include weakening underwriting performance and the company's catastrophe exposure.
In 2007, net earnings slightly declined to NZD 0.34 million (USD 0.26 million) from NZD 0.83 million (USD 0.58 million) in 2006. Ansvar's weakening underwriting profitability in 2007 was primarily due to a higher incidence of unfavorable losses and a persistent soft market condition in the commercial and personal lines of business. The loss ratio increased to 71% in 2007, compared to 67% in 2006 and 58% in 2005. Although Ansvar recorded a similar level of loss experience in the first half of 2008, A.M. Best believes its underwriting profitability will improve due to the soft rating cycle having turned and the resulting higher premium accumulation in the near term.
As with other non-life insurers in New Zealand, Ansvar is exposed to catastrophic perils. In 2007, weather-related losses had partially contributed to the decline in the company's underwriting profitability. Nonetheless, Ansvar is reasonably protected by its reinsurance arrangements with a panel of high quality of reinsurers.
Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers.