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KUALA LUMPUR, AM Best has revised the outlooks for New Zealand’s Police Health Plan Limited (PHP) to negative from stable and affirmed the financial strength rating of A- (Excellent) and the long-term issuer credit rating of ‘a-‘ (Excellent).
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), according to the credit rating agency in a statement.
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 its limited financial flexibility.
Although exhibiting a decreasing trend, PHP’s balance sheet stre
ngth assessment is underpinned by its risk-adjusted capitalisation that remains at the strongest level, as measured by Best’s Capital Adequacy Ratio, reflecting the company’s moderate underwriting leverage and conservative investment approach.
AM Best assesses PHP’s operating performance as adequate, with a five-year average return-on-equity ratio of 3.5 per cent (fiscal years 2019-2023), albeit exhibiting a decreasing trend over the period.
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.
Prospectively, the rating agency 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.
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.
Source: BERNAMA News Agency
