Best’s News & Research Service - April 16, 2015 12:03 PM (EDT)
A.M. Best Affirms Ratings of Pinnacle Life Limited
- April 16, 2015 12:03 PM (EDT)
Singapore //BestWire// - A.M. Best has affirmed the financial strength rating of B (Fair) and the issuer credit rating of "bb+" of Pinnacle Life Limited (New Zealand). The outlook for both ratings remains stable.
The rating affirmations reflect Pinnacle Life's low product risk profile, direct distribution capabilities and a lapse ratio consistently below the market average.
Pinnacle Life mainly underwrites simple life insurance in the term life segment of the New Zealand market, relying primarily on a direct-to-consumer channel. In addition, the company continues to maintain a steady niche in its targeted market segment.
Offsetting rating factors include Pinnacle Life's capital-intensive operating model, relatively small in-force portfolio and high reinsurance leverage.
While not exposed to the high upfront commissions of the adviser channel, marketing of the business through a direct-to-consumer channel also requires significant upfront advertising expenditures, which makes the company's business model very capital intensive to operate. In addition, Pinnacle Life's small capital base has restricted the company's ability to grow rapidly, thereby deferring it from achieving economies of scale. Higher growth will require continued capital raising.
A substantial improvement in Pinnacle Life's solvency capital and financial flexibility could lead to positive rating actions. However, the ratings could be downgraded if there are large impairments in net insurance contract assets due to higher-than-expected lapses for its in-force business, or a higher drain on the solvency margin due to higher-than-budgeted operating expenses or higher-than-assumed claim frequency.
The methodology used in determining these interactive 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. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
- Risk Management and the Rating Process for Insurance Companies
- Understanding Universal BCAR
Ratings are communicated to rated entities prior to publication, and unless stated otherwise, the ratings were not amended subsequent to that communication.
This press release relates to rating(s) that have been published on A.M. 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 visit A.M. Best's Ratings & Criteria Center .
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