Market Overview

A.M. Best Affirms Credit Ratings of Provident Insurance Corporation Limited


A.M. Best has affirmed the Financial Strength Rating of B++
(Good) and the Long-Term Issuer Credit Rating of "bbb" of Provident
Insurance Corporation Limited
(PICL) (New Zealand). The outlook of
these Credit Ratings (ratings) is stable.

The ratings reflect PICL's balance sheet strength, which A.M. Best
categorizes as adequate, as well as its adequate operating performance,
limited business profile and appropriate enterprise risk management

The company's balance sheet strength assessment is underpinned by
risk-adjusted capitalization that A.M. Best expects to be managed to at
least a strong level over the medium term, as measured by Best's Capital
Adequacy Ratio (BCAR). Following receipt of regulatory approval from the
Reserve Bank of New Zealand on July 23, 2018, PICL should complete its
acquisition of the non-life business of Credit Union Insurance Limited
(trading as the Co-op Insurance NZ) in August 2018. Despite this
transaction driving a material increase in net required capital, PICL's
risk-adjusted capitalization for financial year-end 2019 is forecast to
be at a strong level. In addition, A.M. Best expects the full retention
of robust operating profits over the next three years (2019-2021) to
bolster available capital and offset forecast growth in underwriting

PICL's operating performance since inception has been hampered by its
start-up nature and in particular its high operating expenses relative
to earned premiums. However, the company has reported consistently
strong loss ratio experience on its core portfolio of mechanical
breakdown insurance and credit contract indemnity products. Modest
operating profits were reported in 2017 and 2018, with the additional
business generated by the Co-op Insurance NZ acquisition expected to
further support a reduction in PICL's expense ratio in 2019.
Consequently, the company is expected to report strong combined ratios
and robust operating profits over the next three years (2019-2021).

A.M. Best views PICL's business profile as limited given its relatively
small scale of operations, and limited product and geographic
diversification in New Zealand. The company's ERM is assessed as
appropriate. While the scope and profile of PICL's key risks will likely
increase as a result of the Co-op Insurance NZ acquisition, A.M. Best
expects risk management capability to remain adequate relative to the
size and complexity of the company's operations. A level of execution
risk does, however, arise as PICL undergoes the integration of the
acquired business, which includes new product types and policy variants.

Positive rating movements are unlikely in the near term. However,
negative rating pressure could arise from a weakening of PICL's
risk-adjusted capitalization, for example, due to weaker-than-expected
performance from the company's existing portfolio or the acquired Co-op
Insurance NZ business.

Ratings are communicated to rated entities prior to publication.
Unless stated otherwise, the ratings were not amended subsequent to that

This press release relates to Credit Ratings that have been published
on A.M. 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 A.M. Best's
Rating Activity
web page. For additional information
regarding the use and limitations of Credit Rating opinions, please view
Best's Credit Ratings
. For information on the proper media
use of Best's Credit Ratings and A.M. Best press releases, please view
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