SINGAPORE--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Fidelity Life Assurance Company Limited (Fidelity Life) (New Zealand). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Fidelity Life’s balance sheet strength, which AM Best categorises as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
Fidelity Life’s balance sheet strength is underpinned by its risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which remains at the strongest level as of fiscal year-end 2020. AM Best also views Fidelity Life as having good financial flexibility, supported by its largest investor, the New Zealand Superannuation Fund, which invested into the company in 2018 providing a capital injection of NZD 75 million (USD 48 million). While this capital injection strengthened the company’s local regulatory solvency position, Fidelity Life has experienced some volatility in capital adequacy over recent years. AM Best expects prospective regulatory solvency to decline below the company’s internal targets in the near term, strained by new business growth and substantial investment in systems infrastructure, before strengthening over the coming years as the company executes its strategic plan. The company’s high reliance on third-party reinsurance remains a partially offsetting balance sheet factor, with over 40% of gross written premium (GWP) ceded to reinsurers in fiscal-year 2020.
Fidelity Life has a track record of adequate operating performance, evidenced by a five-year average return-on-equity ratio of 6.5% (fiscal-years 2016-2020). The company’s positive operating results have been driven by the favourable underwriting performance of its in-force life business, coupled with low single-digit investment returns. Nonetheless, operating profitability remains sensitive to prevailing market conditions in New Zealand, which have pressured new business margins in recent years. Prospectively, AM Best expects that controlled underwriting growth, a robust pricing strategy and planned expense improvements to support the maintenance of adequate operating performance.
AM Best views Fidelity Life’s business profile as neutral, underpinned by its established position in the life insurance market of New Zealand, with a domestic market share of approximately 11%, based on 2020 in-force GWP. The company provides largely life protection products, including term life, income protection and trauma cover. AM Best notes that Fidelity Life’s core segments in the New Zealand life market remain highly competitive, and that its business model continues to exhibit a reliance on the independent financial adviser channel for product distribution. Prospectively, Fidelity Life’s GWP may be challenged over the medium term due to a weaker sales environment as a result of the economic uncertainty related to the COVID-19 pandemic.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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