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FOR IMMEDIATE RELEASE
HONG KONG - MARCH 26, 2012 12:00 AM (EDT)
A.M. Best Co. has downgraded the financial strength rating to B+ (Good) from B++ (Good) and issuer credit rating to “bbb-” from “bbb” of ACS (NZ) Limited (ACS) (New Zealand). Both ratings have been removed from under review with negative implications and assigned a negative outlook.
The rating actions reflect ACS’ continued stressed risk-adjusted capitalization after it held significant discussions with its group parent, Ecclesiastical Insurance Office plc (United Kingdom) and the direct parent, Ansvar Insurance Limited (Ansvar Australia) (Australia), following a series of earthquakes between September 2010 and June 2011. The ratings also consider ACS’ weakened business profile.
Following the discussions with ACS’ parent, a short-term parental liquidity facility has been put into place to facilitate claims cash flows and timing of reinsurance recoveries; however, its significance is outweighed by the amount of reinsurance recoverables on ACS’ balance sheet. The pace at which the reinsurance recoverable balances can be reduced will be a major driver for the company’s risk-adjusted capitalization going forward. Effective from December 31, 2011, ACS ceased its insurance underwriting in New Zealand and is now focusing on claims management. Furthermore, the company’s name was changed from Ansvar Insurance Limited to ACS (NZ) Limited on February 1, 2012, to better reflect its primary business objective as a run-off claims management operation. These developments significantly reduced ACS’ business profile. Without any underwriting income, capital could be eroded if ACS’ investment income does not offset run-off expenses such as claims administration expenses, write offs and legal costs.
Partially offsetting these negative rating factors are the arrangements with reinsurers that ACS has in place to expedite claims cash flows and efforts by its parental management to seek cash settlements of claims, which could speed up the reduction of reinsurance recoverables.
Factors that could result in negative rating actions include a drawn out reduction of ACS’ reinsurance recoverables and further erosion in its capital position.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Catastrophe Analysis in A.M. Best Ratings”; “Risk Management and the Rating Process for Insurance Companies”; and “Understanding Universal BCAR.” Best’s Credit Rating Methodology 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.