SINGAPORE–(BUSINESS WIRE)–AM Best has downgraded the Financial Strength Rating to B (Fair)
from B++ (Good) and the Long-Term Issuer Credit Rating to “bb+” from
“bbb” of Brightsideco Insurance Limited (Brightsideco) (New Zealand).
The outlook of these Credit Ratings (ratings) has been revised to stable
from negative.
The ratings reflect Brightsideco’s balance sheet strength, which AM Best
categorizes as adequate, as well as its marginal operating performance,
limited business profile and appropriate enterprise risk management.
The rating downgrades follow a deterioration in AM Best’s view of
Brightsideco’s operating performance and balance sheet strength
fundamentals. The balance sheet strength assessment also factors a
negative holding company impact arising from Brightsideco’s ultimate
parent; ICF Holdings Pty Ltd (ICFH), whose creditworthiness, in AM
Best’s view, has declined over recent years.
Brightsideco’s operating performance has exhibited heightened volatility
and a deteriorating trend over recent years. The company’s combined
ratio has fluctuated between 86% and 113% over the past five years
(fiscal-years 2014-2018), with recent performance affected by a higher
frequency and severity of claim costs arising from Brightsideco’s
extended warranty products. In addition, a notable strengthening of the
company’s unexpired risk reserve, which is captured outside the combined
ratio of 113% for fiscal-year 2018, contributed to an overall operating
loss of NZD 1.9 million for the year, equivalent to an operating ratio
of nearly 150%. In response to the poor performance in fiscal-year 2018,
the company has taken a number of remedial actions, including
significant premium rate increases and amendments to policy terms and
conditions, all aimed at improving prospective loss experience. While AM
Best views these steps as positive, the nature of the company’s
long-duration extended warranty products, means that these actions may
take a number of years to have a full effect on earnings.
AM Best expects Brightsideco’s risk-adjusted capitalization, as measured
by Best’s Capital Adequacy Ratio (BCAR), to be categorized as strongest
over the medium term, despite volatility experienced in recent years. In
2018, Brightsideco had a temporary breach of its regulatory solvency
position in New Zealand, following the aforementioned reserve
strengthening requirements. However, the shortfall in capital adequacy
was replenished quickly via a capital injection of NZD 3.5 million from
within the ICFH group. AM Best expects prospective regulatory solvency
to be supported by improved internal capital generation over the medium
term.
Other balance sheet considerations include the company’s very small
absolute capital base, which increases its sensitivity to stressed
scenarios. Furthermore, over the past few years, consolidated earnings
and capital adequacy at ICFH have exhibited a declining trend. Any
further deterioration in the financial strength of ICFH may exert
pressure on the current ratings of Brightsideco.
AM Best views Brightsideco’s business profile as limited, reflecting the
company’s small operational size, niche business portfolio and lack of
geographical diversification. The company also is exposed to high
concentration risk arising from its distribution channel, as almost all
of its policies are distributed through Harvey Norman, a large retail
electrical goods store in New Zealand. Brightsideco and the wider ICFH
group’s relationship with Harvey Norman remains key to Brightsideco’s
insurance operations.
Ratings are communicated to rated entities prior to publication.
Unless stated otherwise, the ratings were not amended subsequent to that
communication.
This press release relates to Credit Ratings that have been published
on AM 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 AM Best’s Recent
Rating Activity web page. For additional information
regarding the use and limitations of Credit Rating opinions, please view Understanding
Best’s Credit Ratings. For information on the proper media
use of Best’s Credit Ratings and AM Best press releases, please view Guide
for Media – Proper Use of Best’s Credit Ratings and AM Best Rating
Action Press Releases.
AM Best is a global rating agency and information provider with a
unique focus on the insurance industry. Visit www.ambest.com
for more information.
Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its
affiliates. ALL RIGHTS RESERVED.
Contacts
Yi Ding
Financial Analyst
+65 6303 5021
[email protected]
Myles Gould
Associate Director, Analytics
+65
6303 5020
[email protected]
Christopher Sharkey
Manager, Public Relations
+1
908 439 2200, ext. 5159
[email protected]
Jim Peavy
Director, Public Relations
+1 908
439 2200, ext. 5644
[email protected]
