Best Downgrades, Places on Review Ansvar Insurance (New Zealand) Ratings

September 29, 2011

A.M. Best Co. has downgraded the financial strength rating to ‘B++’ (Good) from ‘A-‘ (Excellent) and issuer credit rating to ‘bbb’ from ‘a-‘of Ansvar Insurance Limited (New Zealand), and has placed both ratings under review with negative implications.

The rating actions reflect Ansvar New Zealand’s “weakened risk-adjusted capitalization and its significantly higher levels of reinsurance recoverables following the successive Christchurch earthquakes between September 2010 and June 2011,” Best explained.

Best also noted that the under review status is due to “significant discussions regarding its capital and operational aspects,” which are being held by Ansvar New Zealand, its group parent, The UK-based Ecclesiastical Insurance Office plc and the direct parent, Ansvar Insurance Limited (Australia).

“Ansvar New Zealand’s reinsurance program has been effective in absorbing related earthquake claims and has limited the loss impact to the reinsurance deductibles,” Best added. “However, the accumulation of deductibles and reinsurance costs from the subsequent earthquakes in 2011 has weakened the company’s capital position.”

In addition Best pointed out that the earthquakes have resulted in a “significant rise and accumulation of reinsurance recoverables. The associated credit risk and the absolute amount of such recoverables relative to the company’s capital and surplus is a major strain on its risk-adjusted capitalization.

“In the event of another catastrophe before reinsurance recoverables are reduced to a business as usual level, reinsurance recoverables would continue to increase and further exacerbate Ansvar New Zealand’s risk-based capitalization.”

Partially offsetting these negative rating factors is a “liquidity backstop facility in respect to the earthquake reinsurance recoverables that the parent is contemplating putting in place and the potential capital support measures,” said Best.

The rating agency also indicated that Ansvar New Zealand is currently “working with reinsurers to expedite a reduction in reinsurance recoverables.”

Source: A.M. Best

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