SINGAPORE–(BUSINESS WIRE)–AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of Ansvar Insurance Limited (Ansvar) (Australia). The outlook of these Credit Ratings (ratings) is negative.
The ratings reflect Ansvar’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. In addition, Ansvar’s ratings factor in rating enhancement from Ecclesiastical Insurance Office plc (EIO).
Ansvar’s balance sheet strength is underpinned by risk-adjusted capitalisation that was at the very strong level in 2020, as measured by Best’s Capital Adequacy Ratio (BCAR), and which AM Best expects to move to the strongest level over the medium term. During 2020, the company set aside provisions for potential COVID-19 related claims arising predominantly from business interruption coverages, which remain subject to a high level of uncertainty given the ongoing legal proceedings surrounding these policy coverages in Australia. Notwithstanding this, capital injections totalling AUD 20 million in 2020 have bolstered capital adequacy to support Ansvar’s future business expansion and offset the impact from COVID-19 reserve provisioning. Other favourable balance sheet considerations include the company’s low-risk investment portfolio, with assets invested in cash and high-grade fixed-interest securities. Partially offsetting factors include Ansvar’s high reinsurance dependence to support the underwriting of large limit property risks and to manage long-tail liability exposures.
Ansvar’s five-year average return-on-equity ratio is 2.3% (2016-2020). Whilst the company reported an operating profit and recorded a return-on-equity ratio of 3.1% in 2020, its underwriting operations remained loss making. Over the past two years, Ansvar’s technical performance has been hampered by reserve strengthening related to liability exposures for physical and sexual abuse (PSA) claims, COVID-19 provisioning, discount rate movements and several catastrophe events. However, AM Best views the recent placement of an intra-group reinsurance programme as an effective response to further adverse development of PSA claims.
Ansvar is a niche insurer that provides general insurance products to its target customer groups in Australia, including care, community, faith, education and property owners. Its core product offerings are commercial property and casualty. Whilst Ansvar has a long-established presence in its targeted niche sectors in which it leverages its strong expertise and reputation, this advantage is offset partially by the company’s limited control over distribution. This is due to its reliance on non-affiliated intermediary channels, as well as strong competitive pressures in Australia’s general insurance market.
Ansvar’s ratings incorporate rating enhancement from EIO, a U.K.-based insurance group that specialises in providing commercial insurance to the faith, heritage, charity, education and real estate sectors. The rating enhancement reflects Ansvar’s integration with the group’s operations and strategic contribution in terms of value proposition. In addition, Ansvar receives explicit reinsurance support from EIO, including a shared global catastrophe excess of loss program and the aforementioned intra-group PSA reinsurance cover.
The negative outlooks reflect continued pressure on Ansvar’s underwriting and operating performance fundamentals. AM Best views the company’s near-term operating results to be sensitive to revisions in COVID-19 related provisions and the challenging investment landscape.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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