A.M. Best Assigns Ratings to AMI Insurance (Operations) Limited

HONG KONG--(BUSINESS WIRE)--

A.M. Best Co. has assigned a financial strength rating of A- (Excellent) and issuer credit rating of “a-” to AMI Insurance (Operations) Limited (the new AMI) (New Zealand). The outlook assigned to both ratings is stable.

Following its change in ownership as a fully owned entity of IAG (NZ) Holdings Limited (IAG) by close of business on April 5, 2012 NZT, the company will change its name from AMI Insurance (Operations) Limited to AMI Insurance Limited.

The assigned ratings reflect the new AMI's expected capitalization and balance sheet strength following its change in ownership. The ratings also consider the potential synergies the new AMI will have, its status as a strategically important member of the IAG group, its historic underwriting profitability and strengthened reinsurance protection following the 2010/11 earthquakes.

According to management's business plan, the new AMI will be capitalized with NZD 120 million, following its change in ownership and will not carry any liabilities and reinsurance assets related to the 2010/11 Canterbury earthquake events. The new AMI's strong market share in the personal lines market and historic underwriting profitability (except for the Canterbury earthquakes) is expected to considerably strengthen IAG group's market share in New Zealand and could enhance its efficiencies and earnings. These strengths make the new AMI a strategically important member of the IAG group, which strengthens the new AMI's financial flexibility.

In view of the earthquake events between September 2010 and December 2011, the new AMI's catastrophe reinsurance has more than doubled, protecting the company's balance sheet against losses between NZD 10 million to NZD 1.4 billion in the year ending June 30, 2012, compared to NZD 5 million to NZD 600 million in the prior year.

Offsetting these positive rating factors are integration risk and potential changes in the new AMI's earnings retention and capital growth. Should the new AMI's integration into the IAG group disrupt staff morale and change underwriting practices, its underwriting profitability could deteriorate from its historic track record and lead to lower earnings retention and capital growth.

Sustained improvement in the new AMI's risk-adjusted capitalization could lead to upward movement on the assigned ratings.

Significant negative deviation from the business plan that the new AMI's management shared with A.M. Best, in particular, its expected capitalization of NZD 120 million, could lead to downward pressure on the ratings.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Catastrophe Analysis in A.M. Best Ratings”; “Rating Members of Insurance Groups”; “Risk Management and the Rating Process for Insurance Companies”; and “Understanding Universal BCAR.” Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com

Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.