A.M. Best Assigns ‘B+’ Rating to Tasman Pacific

A.M. Best Co. announced that it has assigned an initial financial strength rating of B+ (Very Good) to New Zealand-based Tasman Pacific Insurance Limited, and called the outlook “stable.”

“The rating reflects Tasman Pacific Insurance’s well-established distribution network, robust financial performance and prudent reinsurance strategy,” said Best. It also “expects that the company will continue to capitalize on the growth of its consumer lending affiliate, Provincial Finance Limited.”

The bulletin noted that, “through the marketing network of its affiliated financial service providers, Tasman has experienced significant business growth in the consumer credit insurance segment since its inception in December 2000. Gross premium income increased to NZD 4.5 million (USD 2.2 million) in fiscal year 2003 from NZD 2.3 million (USD 0.96 million) in fiscal year 2002. Despite its relatively modest size, the company is expected to grow profitably in the consumer credit insurance market.”

“Tasman recorded strong profitability in fiscal year 2003, with return on equity and return on assets of 40.9% and 18.3%, respectively. Overall, the consumer credit portfolio has yielded stable operating results. Prospectively, the company’s claims experience will likely stabilize further as premium volume continues to rise. Economies of scale will also lower the company’s expense ratio.”

Best’s analysis stressed that “The stability in Tasman’s underwriting results is enhanced by its reinsurance cover with Hannover Life Re of Australasia, which reinsures a substantial portion of the risks associated with the credit insurance portfolio. Despite its small capital size, Tasman’s financial uncertainty attached under each policy written is brought to a manageable level by the reinsurance program that allows recovery of a large portion of the loss incurred.”

The rating agency did see some potential problems, however. It noted that “affiliated and private investments (accounting for over 58% of invested assets as of fiscal year-end 2003) place significant downward pressure on the company’s risk-adjusted capitalization, as measured by the Best’s Capital Adequacy Ratio (BCAR).”

It also commented on the fact that, as Tasman is a newly formed company, it could face “challenges and uncertainties” connected with business development. It also indicated that as the company’s main business is consumer credit insurance, it “is vulnerable to potential downturns in New Zealand’s economy and consumer confidence.”

Best said it “will monitor the company on an ongoing basis to ensure that management meets the pre-defined performance and capital adequacy benchmarks upon which the rating is predicated.”