The ratings 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 New Zealand’s term life market, relying primarily on the direct-to-consumer channel. In addition, the company continues to hold a stable market position in its targeted market.

Major offsetting rating factors include Pinnacle Life’s small tangible capital base and relatively high reinsurance utilization.

While not exposed to the adviser channel’s high upfront commissions, marketing through a direct-to-consumer channel requires significant upfront advertising expenditures. This has led to a sizable amount of net insurance contract assets (deferred acquisition costs) on Pinnacle Life’s balance sheet. In addition, the company’s small tangible capital base has restricted its ability to grow rapidly. As a result, Pinnacle Life has ceded a large portion of gross premiums to its reinsurer, which has prevented it from achieving economies of scale.

A substantial improvement in Pinnacle Life’s solvency capital and financial flexibility could allow it to achieve those economies of scale and may 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. A rating downgrade could also result from increased drain on the solvency margin due to higher-than-budgeted operating expenses or greater-than-assumed claim frequency.

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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