A.M. Best Assigns Ratings to Co-operative Life Limited

HONG KONG--(BUSINESS WIRE)-- A.M. Best Co. has assigned a financial strength rating of B++ (Good) and issuer credit rating of “bbb+” toCo-operative Life Limited (Co-op Life) (New Zealand). The outlook assigned to both ratings is stable.

The assigned ratings reflect Co-op Life’s supportive risk-adjusted capitalization, continued profit generation and its status as a member of The Co-operative Bank Limited group (Co-op Bank).

In the five years to March 31, 2011, consistent profit generation and full earnings retention led Co-op Life to grow its capital 37% annually to 60% of total assets. Underwriting risk remained low compared to the company’s capital, helping it to achieve a strong risk-adjusted capitalization. Going forward, Co-op Life’s risk-adjusted capitalization is anticipated to stabilize at a lower level that is still supportive of its assigned ratings.

Co-op Life distributes its products exclusively through the Co-op Bank and benefits from its access to Co-op Bank’s membership base and branch network across the country. This helps to shield Co-op Life from the high acquisition costs and related capital strain prevalent in the adviser channel. In A.M. Best’s view, there is no parental drag on Co-op Life’s financial strength due to the parent’s strong capital ratios.

Partially offsetting these positive rating factors are the company’s static capital level target, a higher anticipated expense ratio and recent underwriting volatility. Co-op Bank is required to limit the size of its insurance assets relative to its group assets. As a result, Co-op Life’s management will likely maintain the company’s capital at around NZD 5.75 million going forward and upstream any amount in excess of this level to its parent. At the same time, underwriting risk will likely increase, as Co-op Life is planning to acquire an existing book of business. Similar to its peers, the company is experiencing higher compliance costs and a transition to a less favorable tax environment. Co-op Life’s net loss ratio increased in fiscal years 2010 and 2011. Management has been able to somewhat address this issue by adjusting premium rates on its main term life product, Life Plus. However, the un-reinsured, single premium, Loan Care product could continue to cause volatility to the company’s operating performance.

A removal of the insurance asset limit and return to earnings retention could result in upward movement on Co-op Life’s ratings.

Higher than anticipated growth in underwriting risk and a stronger than anticipated decline in Co-op Life’s risk-adjusted capitalization could lead to downward pressure on the ratings.

The ratings were released on the A.M. Best Company website on May 16, 2012.

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies” and “Understanding Universal BCAR.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2012 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.

A.M. Best Co.Chi-Yeung Lok, +852-2827-3414
Financial Analyst
[email protected]
or
Moungmo Lee, +852-2827-3402General Manager[email protected]
orRachelle Morrow, +(1) 908 439 2200, ext. 5378
Senior Manager, Public Relations
[email protected]
orJim Peavy, +(1) 908 439 2200, ext. 5644
Assistant Vice President, Public Relations
[email protected]

Source: A.M. Best Co.