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FOR IMMEDIATE RELEASE
HONG KONG - SEPTEMBER 28, 2011 12:00 AM (EDT)
A.M. Best Co. has downgraded the financial strength rating to B++ (Good) from A- (Excellent) and issuer credit rating to "bbb" from "a-" of Ansvar Insurance Limited (New Zealand) (Ansvar New Zealand). Both ratings have been placed under review with negative implications.
The rating actions reflect Ansvar New Zealand's weakened risk-adjusted capitalization and its significantly higher levels of reinsurance recoverables following the successive Christchurch earthquakes between September 2010 and June 2011. A.M. Best is aware that Ansvar New Zealand its group parent, Ecclesiastical Insurance Office plc (United Kingdom), and the direct parent, Ansvar Insurance Limited (Australia), are in significant discussions regarding its capital and operational aspects. While these discussions are in progress, A.M. Best has placed Ansvar New Zealand's ratings under review.
Ansvar New Zealand's reinsurance program has been effective in absorbing related earthquake claims and has limited the loss impact to the reinsurance deductibles. However, the accumulation of deductibles and reinsurance costs from the subsequent earthquakes in 2011 has weakened the company's capital position.
In addition, the earthquakes have resulted in a significant rise and accumulation of reinsurance recoverables. The associated credit risk and the absolute amount of such recoverables relative to the company's capital and surplus is a major strain on its risk-adjusted capitalization. In an event of another catastrophe before reinsurance recoverables are reduced to a business as usual level, reinsurance recoverables would continue to increase and further exacerbate Ansvar New Zealand's risk-based capitalization.
Partially offsetting these negative rating factors is a liquidity backstop facility in respect to the earthquake reinsurance recoverables that the parent is contemplating putting in place and the potential capital support measures. Currently, Ansvar New Zealand is working with reinsurers to expedite a reduction in reinsurance recoverables.
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: "Understanding BCAR for Property/Casualty Insurers"; "Understanding Universal BCAR"; and "Natural Catastrophe Stress Test Methodology." 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.