MARCH 03, 2022 10:04 AM (EST)
AM Best Affirms Credit Ratings of The Hollard Insurance Company Pty Ltd
|Yi Ding |
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Associate Director, Analytics
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Manager, Public Relations
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FOR IMMEDIATE RELEASE
SINGAPORE - MARCH 03, 2022 10:04 AM (EST)
AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of The Hollard Insurance Company Pty Ltd (HIC) (Australia). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect HIC’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The company’s balance sheet strength assessment is underpinned by its unconsolidated risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which was at the strongest level in fiscal year 2021, and is expected to remain at least at the very strong level prospectively. Since fiscal year 2020, the company has set aside provisions for potential COVID-19 related claims arising predominantly from business interruption coverages in Australia. This provisioning increased significantly during fiscal year 2021, whilst remaining subject to a high level of uncertainty given the ongoing legal proceedings surrounding these policy coverages in Australia. Despite this, HIC has a track record of financial flexibility and shareholder support, with recent capital injections having helped bolster capital adequacy and offset capital consumption arising from the COVID-19 provisioning.
Other balance sheet strength considerations include the company’s moderate reliance on third-party reinsurance and its exposure to illiquid investments, including equity holdings in affiliated underwriting agencies. AM Best’s balance sheet strength analysis also incorporates a neutral holding company impact following an assessment of consolidated risk-adjusted capitalisation at HIC’s immediate parent, Hollard Holdings Australia Pty Ltd (HHA). AM Best continues to note the anticipated acquisition of Commonwealth Insurance Limited by HHA, which is expected to be completed in the second half of calendar year 2022. This transaction continues to be monitored by AM Best for any impact on the consolidated financial position of HHA, including as a result of the final funding structure.
AM Best views HIC’s operating performance as adequate. The company recorded an average return-on-equity ratio of 1.9% between fiscal years 2017-2021 on an unconsolidated basis, with the operating results trending downward significantly over the past two fiscal years, primarily as a result of increased COVID-19 related provisions. The company reported an underwriting loss with a combined ratio of approximately 110% in fiscal year 2021, which was partially offset by a positive revaluation of its strategic investments following a significant downward fair value adjustment in the previous year. Prospectively, AM Best expects HIC’s operating earnings to exhibit an upward trend over the medium term, as the company has implemented actions to improve the loss experience of its core insurance product offerings, as well as reduce its expense ratio through increased operational scale. However, future revisions of COVID-19 related provisioning will remain a key driver of both technical and operating results over the near term. As HIC prepares financial statements on an unconsolidated basis, AM Best has considered HHA’s consolidated performance as part of the operating performance assessment. HHA consolidates the operations of HIC, and all its controlled strategic investments in underwriting agencies.
AM Best assesses HIC’s business profile as neutral. The company is the fifth largest non-life insurer in Australia based on gross written premiums, albeit occupying a modest market share of approximately 4% in 2021. HIC maintains a strong market position in certain niche segments, including the pet insurance sector. The company has recorded robust premium growth over the past 10 years, supported by a diversified network of distribution partners and affiliated underwriting agencies in Australia and New Zealand.
AM Best considers HIC’s ERM as appropriate given the size and complexity of the company’s operations. As a result of HIC’s rapid expansion over recent years, the company is engaged in ongoing strengthening of its risk management capabilities in line with increased operational scale and risk profile.
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 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.