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A.M. Best Affirms Credit Ratings of The Hollard Insurance Company Pty Ltd


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FOR IMMEDIATE RELEASE

OLDWICK - JANUARY 20, 2017 12:05 PM (EST)
A.M. Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of The Hollard Insurance Company Pty Ltd (HIC) (Australia). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect HIC’s strong risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), and good operating performance.

HIC’s strong risk-adjusted capitalization is reflective mainly of its moderate underwriting leverage and the financial support provided by its parent entities, including capital infusions, hybrid capital and contingent capital facilities. In addition, A.M. Best expects HIC to remain consistently profitable, based on a product portfolio that includes mostly pet health insurance, as well as domestic home and motor insurance in Australia. Over the past five years, the company earned an average return on capital of approximately 11%.

Partially offsetting these strengths is HIC’s low capital quality, which is due to its relatively strong dependency on reinsurance.

As a medium-sized insurer, HIC writes a significant volume of business relative to its capital size, which results in a high gross underwriting leverage. In addition, while HIC cedes over 25% of its gross premiums and reserves to reinsurers, the company’s ceded reinsurance leverage is also elevated. As of June 30, 2016, its ceded reinsurance leverage ratio (the sum of reinsurance expenses and reinsurance assets divided by net assets) was almost 200%, which suggests a very high level of dependence on reinsurance.

Key factors that could lead to negative rating actions include inadequate product pricing that results in material deviations from the expected improvement in operating performance or risk-adjusted capitalization. Additionally, the ratings may experience downward pressure if there is diminished support from the company’s parent entities in terms of capital.

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 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 see A.M. 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.

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