Ratings Roundup: Product Care, Taiping (Singapore)

A.M. Best Asia-Pacific Limited has assigned a financial strength rating of ‘B++’ (Good) and an issuer credit rating of “bbb” to Product Care (New Zealand) Limited (PCL), both with stable outlooks. PCL operates as a fully owned entity of ICF Holdings Pty Ltd (ICFH) group. Its purpose is to provide the group’s existing New Zealand-domiciled risks with a vehicle that is fully licensed by the Reserve Bank of New Zealand to carry on non-life insurance business. Best said the ratings reflect PCL’s business profile, low execution risk and balance sheet strength. As a member of the ICFH group, PCL will benefit from assuming an existing book of business that will essentially be run by the same management and on the same infrastructure with risks originated from the same single customer. This is expected to minimize execution risk and PCL’s expense ratio. PCL’s balance sheet strength is supportive of its assigned ratings. Improved underwriting profitability is expected to gradually help PCL grow its absolute capital, while the ratio of underwriting risk to capital is not expected to increase.” As offsetting factors Best cited “significant single customer risk and marginal initial regulatory capital. Similar to its affiliates, PCL is exposed to significant single customer risk, as its premiums are almost entirely generated from one single corporate customer. PCL is expected to be capitalized marginally above the NZD 3 million [US$2.4 million] regulatory minimum for non-life insurance businesses in New Zealand. This leaves little buffer to absorb unexpected cost swings.” In conclusion Best described the company as “well placed for its ratings,” but the report also cautioned that “a termination of ICFH’s commercial relationship with PCL’s customers could lead to downward pressure on the ratings.”

A.M. Best Asia-Pacific Limited has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of China Taiping Insurance (Singapore) Pte. Ltd.(CTIS), both with stable outlooks. The ratings reflect CTIS’ “solid risk-adjusted capitalization, stable underwriting performance and the operational support the company receives from China Taiping Insurance Group (HK) Company Limited in terms of investment, reinsurance and risk management, Best said. The report also noted that “CTIS’s favorable operating and investment results in recent years have contributed to the growth in its capital base. CTIS’ risk-adjusted capitalization level as measured by Best’s Capital Adequacy Ratio (BCAR) improved in 2012 and is supportive of its current ratings. Given its modest business projections, the company’s risk-based capitalization is expected to remain solid in the near term. CTIS’ underwriting performance has been stabilized since 2007. Due to management’s efforts, CTIS has managed to maintain its combined ratio at a five-year average of 85 percent. Motor remains the biggest line of business in CTIS’s portfolio; its performance has seen gradual improvement in the past three years, compared to years prior to 2009, but its high loss ratio remains a concern.” As partial offsetting factors Best cited the “soft market conditions in Singapore as well as the potential volatile claims experience stemming from the work injury compensation (WIC) portfolio. WIC recorded a high loss ratio in 2012 partly attributed to the additional reserves established by CTIS with the intention to cushion any impact on rising compensation costs and the competitive market environment. Future positive rating actions could occur if CTIS is able to maintain its solid capitalization, achieve sustained improvement in underwriting of key business lines and enhance its enterprise risk management framework. Alternatively, negative rating actions could occur if CTIS’ operating performance deteriorates or there is a substantial decline in its risk-based capitalization level.