Best Affirms FSR for Tasman Pacific

A.M. Best Co. has affirmed the financial strength rating of B+ (Very Good) of Tasman Pacific Insurance Limited (Tasman) (New Zealand). The outlook is stable.

The rating reflects Tasman’s stable underwriting performance, strong distribution support from its affiliated companies and continuous reduction in affiliated investments.

Tasman has experienced strong business growth since its incorporation in 2001. The company has achieved profitable underwriting performance over the past three years. Despite a higher loss ratio, Tasman’s consistent improvement in its expense ratio has helped it maintain its combined ratio at a level of 92% in fiscal year 2005.

Tasman began underwriting business in the second tier motor vehicle market in fiscal year 2005. With limited experience in underwriting motor insurance, the company’s ability to sustain a profitable underwriting performance remains uncertain in the mid term.

The company continues to benefit from the distribution support from its affiliated companies, mainly Provincial Finance Limited.

Tasman had consistently decreased its affiliated investments during fiscal years 2003 to 2005. Its affiliated investments to total capital and surplus declined substantially to 27% from 102% during the same period. This reduction enhanced the company’s financial flexibility.

Offsetting factors are marginal risk-adjusted capitalization, aggressive investment portfolio and potential vulnerability to New Zealand’s consumer credit market.

The company is marginally capitalized on a risk-adjusted basis. A.M. Best believes that Tasman’s risk-adjusted capitalization will be under pressure if it repatriates its operating earnings through dividend payouts in fiscal year 2006. A stronger level of capitalization is vital for Tasman’s business growth.

Tasman has an aggressive investment portfolio, with equities accounting for 76% of its total assets in fiscal year 2005. Cash, short-term investments and government bonds further decreased to 5.6%. This aggressive investment mix exposes the company’s investment returns to potential volatility.

Given Tasman’s business focus on the consumer credit insurance line, A.M. Best remains cautious about its exposure to the cyclical nature of the consumer credit and loan market in New Zealand.