Best’s News & Research Service - June 24, 2021 09:16 AM (EDT)
AM Best Affirms Credit Ratings of Brightsideco Insurance Limited
- June 24, 2021 09:16 AM (EDT)
Singapore //BestWire// - AM Best has affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb+” (Fair) of Brightsideco Insurance Limited (Brightsideco) (New Zealand). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Brightsideco’s balance sheet strength, which AM Best assesses as adequate, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management.
Brightsideco’s balance sheet strength is underpinned by its risk-adjusted capitalisation, which AM Best expects to remain at the strongest level over the medium term, as measured by Best’s Capital Adequacy Ratio (BCAR). Following a notable strengthening of the company’s unexpired risk reserve (URR) that led to volatility in its regulatory solvency ratio in fiscal year 2018, the company has taken remedial actions to support the full release of its URR by the end of fiscal year 2020 and to subsequently build-up a sizable buffer in its regulatory solvency position in the period since. Other balance sheet considerations include the company’s very small absolute capital base, which increases its sensitivity to stressed scenarios. Furthermore, the balance sheet strength assessment factors a negative holding company impact arising from Brightsideco’s ultimate parent, ICF Holdings Pty Ltd (ICFH), following an assessment of consolidated risk-adjusted capitalisation.
Brightsideco reported a five-year weighted average return-on-equity ratio of 2.9% and combined ratio of 109.6% (fiscal years 2016 to 2020). Operating performance has exhibited heightened volatility over this period, with worsening incurred loss ratios and strengthening of the URR in fiscal years 2017 and 2018. The company has reported stronger operating performance metrics during fiscal years 2019 and 2020, with a return-on-equity ratio in excess of 8%, driven partially by the release of the URR. However, underlying underwriting results, excluding the URR release, have remained challenged, and continued to produce combined ratios in excess of 100%. Prospectively, AM Best expects the company’s technical performance to improve over the medium term as it benefits from the remedial actions taken, such as premium rate increases and coverage reductions. However, AM Best notes that the nature of the company’s long-duration extended warranty products means that these actions are likely to take a number of years to have a full effect on earnings.
AM Best views Brightsideco’s business profile as limited, reflecting the company’s small operational size, niche business portfolio and lack of geographic diversification. The company also is exposed to high concentration risk arising from its distribution channel, as almost all of its policies are distributed through a large electrical goods retailer in New Zealand. Brightsideco and the wider ICFH group’s relationship with this strategic partner remains key to Brightsideco’s insurance operations.
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 AM 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 AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.