The ratings reflect FMGIL’s strong risk-adjusted capitalization, consistently positive operating performance and well-established profile in the rural sector of New Zealand’s general insurance market. The ratings also reflect FMGIL’s low underwriting leverage, high-quality investment portfolio and direct distribution network capability.
Due to FMGIL’s focus on the rural market, its insured risks are spread widely geographically across the country. Moreover, the company continuously has engaged resources in loss prevention programs, such as providing risk advice services to its policyholders. These combined factors help FMGIL achieve lower and less volatile loss ratios compared with the industry averages over the past several years.
A major offsetting rating factor is FMGIL’s exposure to frequent natural peril events. As an insurer focused in the rural sector, the company’s underwriting results are more sensitive to the effects of collective losses from less severe but more frequent events, often weather related. A.M. Best also expects the company’s near-term earnings results to be under pressure, largely due to the impacts of the Kaikoura earthquakes in November 2016.
In addition, FMGIL is a wholly owned subsidiary of
Farmers’ Mutual Group, which has limited financial flexibility as a mutual insurer. Hence, FMGIL is reliant largely on retained earnings to support its growth in underwriting risks and to absorb operating losses. Nevertheless, this risk is mitigated partially by excess liquid assets held within the group and a prudent capital management policy.
Positive rating movement may occur if FMGIL continuously can achieve its underwriting profit goals while maintaining strong risk-adjusted capitalization. Negative rating actions could occur if there is significant deterioration in the company’s risk-adjusted capitalization as a result of multiple catastrophe event losses.
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.A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
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