Best’s News & Research Service - March 02, 2022 10:54 AM (EST)
AM Best Removes From Under Review With Developing Implications, Affirms Credit Ratings of Fidelity Life Assurance Company Ltd.
- March 02, 2022 10:54 AM (EST)
Singapore //BestWire// - AM Best has removed from under review with developing implications and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of Fidelity Life Assurance Company Limited (Fidelity Life Assurance) (New Zealand). The outlook assigned to these Credit Ratings (ratings) is stable.
The ratings reflect Fidelity Life Assurance’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
These rating actions follow the completion, on 28 February 2022, of Fidelity Life Assurance’s acquisition of Westpac Banking Corporation’s New Zealand life insurance business, Westpac Life-NZ- Limited (Westpac Life) for NZD 400 million. Following completion, Westpac Life has been renamed as Fidelity Insurance Limited (Fidelity Insurance). The acquisition, previously announced in July 2021, also includes the establishment of an exclusive 15-year life insurance distribution arrangement with Westpac New Zealand Limited (WNZL) to distribute Fidelity Insurance products to WNZL’s retail customers.
Concurrently, Fidelity Life Assurance successfully closed a capital raise in order to part fund the transaction, with equity raised mainly from its largest existing shareholder, the New Zealand Superannuation Fund (NZ Super Fund), and a new investor, Ngāi Tahu Holdings Corporation Limited (Ngāi Tahu). The remaining transaction funding was sourced through advanced commission financing of a newly established reinsurance treaty.
Fidelity Life Assurance’s balance sheet strength assessment is underpinned by its pro-forma consolidated risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which AM Best expects to remain at the strongest level over the medium term. AM Best also views Fidelity Life Assurance as having good financial flexibility, supported by its two largest shareholders, NZ Super Fund and Ngāi Tahu. Fidelity Life Assurance has experienced some volatility in regulatory capital adequacy over recent years, mainly due to new business growth and substantial investment in systems infrastructure. However, AM Best expects the company’s local regulatory solvency position to be maintained at an appropriate level, supported by a robust post-acquisition capital management strategy. A partially offsetting balance sheet factor is Fidelity Life Assurance’s current and prospective high reliance on third-party reinsurance.
Fidelity Life Assurance has a track record of adequate operating performance with a five-year average return-on-equity ratio of 4% (fiscal years 2017-2021). AM Best expects consolidated operating performance metrics to remain at a robust level prospectively, supported by continued positive underwriting results of its incumbent and acquired businesses. Whilst AM Best expects some near term expense strain to arise from transaction and integration costs and Fidelity Life Assurance’s substantial investment in systems infrastructure, the increased scale of the combined group is expected to support scale efficiencies over the medium term.
Following the acquisition of Fidelity Insurance, Fidelity Life Assurance ranks among the largest life insurance companies in New Zealand on a pro-forma basis. AM Best views the establishment of an exclusive 15-year bancassurance distribution arrangement with WNZL to have diversified Fidelity group’s distribution capabilities, previously centred upon the capital-intensive financial adviser channel. While the combination of Fidelity Life Assurance and Fidelity Insurance could be accretive to the group’s prospective operating performance and business profile, in AM Best’s view, successful business integration will be required to realise these benefits in highly competitive market conditions.
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 use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
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.