SINGAPORE–(BUSINESS WIRE)–AM Best has affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb+” (Fair) of Quest Insurance Group Limited (Quest) (New Zealand). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Quest’s balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM). The ratings also factor in a neutral impact from the company’s ultimate majority ownership by Federal Pacific Group Limited.
Quest’s balance sheet strength is underpinned by its risk-adjusted capitalisation, which was at the strongest level in fiscal year 2020, as measured by Best’s Capital Adequacy Ratio (BCAR). AM Best expects Quest’s risk-adjusted capitalisation to trend down over the near term due to increased underwriting risk emanating from planned portfolio growth. Notwithstanding this, risk-adjusted capitalisation is expected to remain at least at the strong level over the medium term. AM Best considers Quest’s asset quality to have improved following the sale of an illiquid private equity investment during fiscal year 2021, with prospective asset allocation expected to include cash, term deposits and affiliated loans over the medium term. A partially offsetting balance sheet factor is the company’s small absolute capital base, which exposes risk-adjusted capitalisation to volatility in the event of stressed scenarios.
The company has a track record of adequate operating performance, as evidenced by a five-year weighted average return-on-equity ratio of 11.7% (fiscal years 2016 to 2020). Despite elevated underwriting growth over the past two fiscal years, Quest has consistently returned underwriting profits, with the combined ratio tracking in the low 90% range. AM Best expects prospective operating performance to remain supportive of the adequate assessment over the medium term, driven by positive underwriting results.
AM Best assesses Quest’s business profile as limited, reflecting its small market presence and relatively concentrated niche product offering, largely as a provider of mechanical breakdown insurance (MBI) and comprehensive vehicle insurance (CVI) in New Zealand. The company’s scale of operation has increased significantly in recent years, driven by both the growth in Quest’s direct channels and a strategic partnership with Janssen Insurance Limited (Janssen), a third-party distributor of motor-related insurance. This has significantly diversified Quest’s distribution channels outside of affiliated business written in conjunction with its intermediate parent group, Geneva Finance Limited. Quest’s near-term projected underwriting growth is expected to be driven by increased volumes written through the partnership with Janssen, as well as from entering into new direct distribution deals for MBI and CVI business.
AM Best assesses Quest’s ERM as appropriate given the current size and complexity of the company’s operations. Following recent business expansion, the company is exposed to an elevated level of underwriting execution risk. However, this risk has been mitigated partially to date through adequate monitoring of underwriting performance, and a conservative approach to pricing and reserving supported by a third-party actuary.
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 media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media – Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
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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