Oldwick, N.J. (BUSINESS WIRE) - A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and issuer credit rating of "a-" of Consumer Insurance Services Limited (CISL) (New Zealand). The outlook for both ratings is stable.
The ratings reflect CISL's consistent operating profitability and improvement in risk-adjusted capitalization.
The ratings also acknowledge CISL's operational synergy derived from the financing activities of Fisher and Paykel Finance Limited (F&P Finance).
A reduction in underwriting risk as a result of a fall in net premiums written led to an increase in CISL's risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), for the year ended March 2008.
Nonetheless, CISL's capital and surplus on an absolute basis recorded a slight improvement of 2.3% to NZD 5.3 million in 2008.
CISL continued to sustain its solid operating profitability through maintaining favorable claims experience and growing its administrative earnings. Despite the decrease in direct insurance business, income from administrative warranty grew to NZD 1.9 million (USD1.5 million) for fiscal year 2008, representing 57.8% of the company's pre-tax operating income.
CISL produced an overall net income of NZD 2.2 million (USD1.8 million), equivalent to a 41.8% return on equity. With the emergence of warranty income and stable claims experience, CISL is expected to maintain sound operating results in the near term, although the expense ratio will remain relatively high.
Offsetting rating factors include CISL's business concentration risk in the consumer credit market, decline in business volume and high dividend payout requirement.
Given CISL's primary focus in the consumer credit insurance product, its underwriting result is heavily dependent on the consumer credit market's profile. A change in payment method of the underlying loan led to a 24.1% decline in direct insurance business in 2008. A further shift in consumer loan payment preference could potentially translate into earnings volatility for CISL going forward, although the company has plans to launch a new initiative to diversify its income sources.
As a result of the high dividend payout requirement by its parent, CISL paid 97.9% of the company's net earnings over the
past five years, greatly limiting its internal surplus growth.
Nonetheless, A.M. Best believes that F&P Finance will provide ongoing capital support to CISL should the business need arise.
For Best's Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.
Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers.
For more information, visit www.ambest.com.
A.M. Best Co.
Analysts
Billy Wong, +852-2827-3414 billy.wong@ambest.com
or Terrence Wong, +852-2827-3403 terrence.wong@ambest.com
or Public Relations
Jim Peavy,+(1) 908-439-2200, ext. 5644
james.peavy@ambest.com
or Rachelle Morrow,+(1) 908-439-2200, ext. 5378
rachelle.morrow@ambest.com
The ratings reflect CISL's consistent operating profitability and improvement in risk-adjusted capitalization.
The ratings also acknowledge CISL's operational synergy derived from the financing activities of Fisher and Paykel Finance Limited (F&P Finance).
A reduction in underwriting risk as a result of a fall in net premiums written led to an increase in CISL's risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), for the year ended March 2008.
Nonetheless, CISL's capital and surplus on an absolute basis recorded a slight improvement of 2.3% to NZD 5.3 million in 2008.
CISL continued to sustain its solid operating profitability through maintaining favorable claims experience and growing its administrative earnings. Despite the decrease in direct insurance business, income from administrative warranty grew to NZD 1.9 million (USD1.5 million) for fiscal year 2008, representing 57.8% of the company's pre-tax operating income.
CISL produced an overall net income of NZD 2.2 million (USD1.8 million), equivalent to a 41.8% return on equity. With the emergence of warranty income and stable claims experience, CISL is expected to maintain sound operating results in the near term, although the expense ratio will remain relatively high.
Offsetting rating factors include CISL's business concentration risk in the consumer credit market, decline in business volume and high dividend payout requirement.
Given CISL's primary focus in the consumer credit insurance product, its underwriting result is heavily dependent on the consumer credit market's profile. A change in payment method of the underlying loan led to a 24.1% decline in direct insurance business in 2008. A further shift in consumer loan payment preference could potentially translate into earnings volatility for CISL going forward, although the company has plans to launch a new initiative to diversify its income sources.
As a result of the high dividend payout requirement by its parent, CISL paid 97.9% of the company's net earnings over the
past five years, greatly limiting its internal surplus growth.
Nonetheless, A.M. Best believes that F&P Finance will provide ongoing capital support to CISL should the business need arise.
For Best's Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.
Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers.
For more information, visit www.ambest.com.
A.M. Best Co.
Analysts
Billy Wong, +852-2827-3414 billy.wong@ambest.com
or Terrence Wong, +852-2827-3403 terrence.wong@ambest.com
or Public Relations
Jim Peavy,+(1) 908-439-2200, ext. 5644
james.peavy@ambest.com
or Rachelle Morrow,+(1) 908-439-2200, ext. 5378
rachelle.morrow@ambest.com
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