SINGAPORE--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” of Union Medical Benefits Society Limited (UniMed) (New Zealand). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect UniMed’s balance sheet strength, which AM Best categorises as very strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management.
UniMed’s balance sheet strength assessment is supported by its risk-adjusted capitalisation, which AM Best categorised as strongest in fiscal-year 2019, and is expected to remain at this level over the medium term, as measured by Best’s Capital Adequacy Ratio (BCAR). This reflects the company’s low underwriting leverage and prudent investment approach. In addition, AM Best views the company as having a favourable liquidity position. As a not-for-profit insurer, UniMed has no dividend commitments, but AM Best considers its financial flexibility as limited. Notwithstanding this, the company’s sizeable capital buffer provides protection against potential adverse developments in future earnings or balance sheet items.
AM Best views UniMed’s operating performance to be strong, with a five-year average return-on-equity ratio of 9.9% and five-year average operating ratio of 87.9% (fiscal-years 2015-2019), albeit with a moderate level of volatility over this period. The company’s overall earnings have been driven by sound underwriting performance and stable investment returns. UniMed benefits from an efficient cost structure that allows it to offer competitive health coverage and premiums to its members. The company’s loss ratio also has reduced over the past several years, driven in part by improvements in its surgical claims approval process and diligent control over timely and appropriate rates adjustments. While the public health care system in New Zealand is responsible for the pandemic response to COVID-19, AM Best does expect a level of volatility in UniMed’s prospective loss experience. For fiscal-year 2020, claims volumes are expected to fall from the deferral of elective surgeries during the country’s lockdown period, followed by a subsequent catch up in claims activity over the coming fiscal periods.
AM Best assesses UniMed’s business profile as limited. The company is a small-sized, not-for-profit insurer with a market share of 4% in New Zealand’s health insurance industry, based on 2019 gross written premiums. UniMed’s underwriting portfolio continues to have limited product line and geographical diversification. In addition, the company has a concentration toward a few large group medical accounts, which increases the susceptibility of overall earnings to changes in the performance of these key accounts. Despite ongoing challenging market conditions, UniMed’s membership has increased in fiscal-year 2019 due to a portfolio transfer from The Education Benevolent Society Incorporated and its newly launched retail offering. Prospectively, UniMed’s top line may be affected adversely due to cancellations and weaker sales as a result of economic downturn related to COVID-19.
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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Sin Yee Chuah
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