AM Best Revises Outlooks to Negative for Police Health Plan Limited
12 Julio 2024 - 8:51AM
Business Wire
AM Best has revised the outlooks to negative from stable
and affirmed the Financial Strength Rating of A- (Excellent) and
the Long-Term Issuer Credit Rating of “a-” (Excellent) of Police
Health Plan Limited (PHP) (New Zealand).
The Credit Ratings (ratings) reflect PHP’s balance sheet
strength, which AM Best assesses as very strong, as well as its
adequate operating performance, neutral business profile and
appropriate enterprise risk management. In addition, the ratings
factor in a neutral impact from the company’s ultimate ownership by
the New Zealand Police Association (NZPA).
The revision of the outlooks to negative from stable reflects
increasing pressure on PHP’s operating performance, which also
places pressure on its balance sheet strength fundamentals, given
the declining risk-adjusted capitalisation due to underwriting
losses and PHP’s limited financial flexibility.
PHP’s balance sheet strength assessment is underpinned by its
risk-adjusted capitalisation that remains at the strongest level,
as measured by Best’s Capital Adequacy Ratio (BCAR), albeit
exhibiting a decreasing trend. This reflects the company’s moderate
underwriting leverage and conservative investment approach. As a
public-benefit insurer dedicated only to its captive membership
base, AM Best views PHP’s financial flexibility as limited. An
offsetting balance sheet factor is the company’s modest capital
base, which results in higher sensitivity of capital adequacy to
stress scenarios or fluctuations in performance.
AM Best assesses PHP’s operating performance as adequate, with a
five-year average return-on-equity ratio of 3.5% (fiscal years
2019-2023), albeit exhibiting a decreasing trend over the period.
PHP benefits from an efficient cost structure that allows it to
offer competitive health coverage and premium rates to its members.
As a not-for-profit insurer, given that the company’s regulatory
solvency ratio is higher than its internal target and it does not
pay dividends, PHP is in the process of returning part of its
capital to policyholders by maintaining an elevated loss ratio over
the medium term. Nonetheless, the increase in loss ratio in recent
fiscal years was higher than PHP’s previous business plan. PHP has
increased the premium rate significantly to improve its
underwriting profitability. Prospectively, AM Best expects PHP to
maintain long-term performance close to break-even despite weaker
underwriting results. However, if its claims experience is
significantly above plan, AM Best expects PHP to adjust premium
rates rapidly, as it has done historically.
PHP provides health insurance exclusively to current and former
members of the New Zealand police and their families. Despite
having a relatively small premium base in New Zealand’s health
insurance market, the company’s business profile assessment factors
in its high penetration rate within the police force and its close
integration with the NZPA, which gives rise to synergy and
efficiency benefits. PHP has preferential access to the NZPA’s
member base, benefits from low distribution costs, and shares
overhead with the broader group.
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 AM 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 AM Best’s Recent Rating
Activity web page. For additional information regarding the use and
limitations of Credit Rating opinions, please view Guide to Best’s
Credit Ratings. For information on the proper use of Best’s
Credit Ratings, Best’s Performance Assessments, Best’s
Preliminary Credit Assessments and AM Best press releases, please
view Guide to Proper Use of Best’s Ratings &
Assessments.
AM Best is a global credit rating agency, news publisher and
data analytics provider specialising in the insurance industry.
Headquartered in the United States, the company does business in
over 100 countries with regional offices in London, Amsterdam,
Dubai, Hong Kong, Singapore and Mexico City. For more information,
visit www.ambest.com.
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Ken Lau Senior Financial Analyst +65 6303
5025 ken.lau@ambest.com
Christopher Sharkey Associate Director, Public
Relations +1 908 882 2310
christopher.sharkey@ambest.com
Victoria Ohorodnyk Director, Analytics +65 6303
5020 victoria.ohorodnyk@ambest.com
Al Slavin Senior Public Relations Specialist +1
908 882 2318 al.slavin@ambest.com