A.M. Best Upgrades Ratings of Pacific International Insurance Limited

HONG KONG--(BUSINESS WIRE)--

A.M. Best Co. has upgraded the financial strength rating to B++ (Good) from B+ (Good) and the issuer credit rating to “bbb” from “bbb-” of Pacific International Insurance Limited (PII) (New Zealand). The outlook for both ratings has been revised to stable from positive.

The ratings reflect PII's good risk-adjusted capitalization and conservative capital management approach. PII's risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), remained strong in fiscal year 2011, reflecting the continued low underwriting risk relative to the company's capital and surplus. PII's fiscal year 2011 net premium leverage (0.50) and net technical reserve to capital and surplus (0.83) were below their five-year averages. Moving forward, a reduction in shareholder loans and continued low underwriting leverage are expected to strengthen the company's risk-adjusted capitalization.

Offsetting factors include a weakening trend in PII's underwriting profitability and the short history of its long tail book of business.

PII's underwriting profitability weakened over the past five years to June 30, 2011, with both the average expense and loss ratios rising. Management expects the combined ratio to remain relatively high going forward, partly due to price competition in the company's niche market and higher compliance costs. Due to the relatively short history of PII's long tail book of business, there is a possibility that adverse reserve development could emerge, leading to volatility in the company's underwriting performance.

A material deterioration in the company's risk-adjusted capitalization and a withdrawal of capital from key shareholders 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: “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.

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