Credit Ratings Upgrade
AM Best has recently upgraded the credit ratings for Provident Insurance Corporation Limited (PICL), a New Zealand-based insurer.
The company’s Financial Strength Rating has seen an improvement from B (Fair) to B+ (Good), while its Long-Term Issuer Credit Rating has climbed from “bb+” (Fair) to “bbb-” (Good).
However, the outlook for these ratings has shifted from positive to stable.
Several factors contributed to this positive assessment by AM Best.
Notably, PICL boasts an adequate balance sheet, satisfactory operating results, and effective enterprise risk management practices, even though its business profile remains somewhat limited.
Operational Performance
The ratings upgrade reflects a noticeable and sustained improvement in PICL’s risk-adjusted capitalization, highlighted in recent evaluations.
By the close of fiscal year 2024, PICL’s risk-adjusted capitalization—measured by Best’s Capital Adequacy Ratio (BCAR)—reached a robust level.
AM Best projects that the company will maintain at least a strong level of this capitalization over the medium term, driven by its ability to generate internal capital alongside plans for partial share redemptions and growth initiatives.
The strength of PICL’s balance sheet is further bolstered by a conservative investment strategy and solid regulatory solvency.
While increased reserving risks arise from its long-duration policies, the company’s cautious reserving approach has historically proven adequate.
When evaluating PICL’s operations, AM Best deems the company’s performance as adequate.
Favorable underwriting results and strong investment returns have positively impacted the bottom line.
In fiscal year 2024, PICL reported a return on equity of 15.2% and a combined ratio (net/net, IFRS 17) of 96.9%.
To drive future growth, the company has recently invested significantly in technology and updated pricing strategies.
This shift, while leading to a higher expense ratio, is expected to stabilize in the long run as efficiencies are realized.
Business Model and Risk Management
PICL operates in a limited business profile, attributed to its smaller scale and geographical focus, with all operations concentrated in New Zealand.
The company’s specialization includes niche offerings such as mechanical breakdown insurance and private motor vehicle coverage, primarily distributed through motor dealerships and local partners.
Additionally, PICL faces moderate pricing risks associated with its multi-year policies, particularly in the mechanical breakdown segment.
In terms of enterprise risk management, AM Best views PICL’s practices as suitable given the company’s operational size and complexity.
While executing its growth strategy presents challenges, PICL has effectively navigated these risks through investments in internal capabilities and technology improvements.
AM Best anticipates that as PICL continues to expand, its risk management functions will grow and adapt accordingly.
Before publicly announcing any rating changes, AM Best communicates these updates to the relevant entities involved.
Unless explicitly stated otherwise, the ratings remain unchanged following this communication.
For detailed information regarding the credit ratings and associated disclosures, please visit AM Best’s official website where this press release is available.
Source: Ambest
