SINGAPORE, March 15 – AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” (Excellent) of FMG Insurance Limited (FMGIL) (New Zealand). The outlook of these Credit Ratings (ratings) is stable. The ratings reflect FMGIL’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 holding company impact from the company’s 100% ownership by Farmers’ Mutual Group (FMG). FMGIL’s balance sheet strength assessment is underpinned by its risk-adjusted capitalisation being at the strongest level at fiscal year-end (31 March) 2022, as measured by Best’s Capital Adequacy Ratio (BCAR). Prospectively, AM Best expects the company’s risk-adjusted capitalisation to remain at this level over the medium term.
FMGIL is considered to have a comprehensive reinsurance programme that provides protection against high-severity modelled catastrophe events in New Zealand. AM Best views the company’s investment portfolio to be of moderate risk with a focus on cash and high-quality fixed-income securities, albeit with some exposure to equities. A partially offsetting balance sheet strength factor is the company’s limited financial flexibility, given its ultimate ownership by FMG, a mutual organisation.
AM Best assesses FMGIL’s operating performance as adequate, with a five-year average return-on-equity ratio of 9.6% (fiscal years 2018-2022). Over this same period, the company has recorded robust underwriting profits, aided in part by a lower-than-expected frequency for motor claims during the COVID-19 pandemic. For fiscal year 2023, AM Best expects the company to report a deterioration in underwriting and operating results.
Due to a combination of claims cost inflation and the impact of several large weather events, including flooding and cyclone events in New Zealand in January and February 2023. Notwithstanding this, AM Best expects the company’s robust pricing strategy and positive investment returns to help maintain its adequate operating performance assessment over the medium term. AM Best views FMGIL’s business profile as neutral. The company benefits from its established profile as a leading rural insurer in New Zealand, despite having a relatively small market share of approximately 6% of the overall non-life segment, based on gross written premium (GWP).
FMGIL has a strong direct distribution business model that is built on long-standing customer relationships and supported through its ownership by FMG, which has a long history and strong brand recognition in New Zealand’s rural sector. Whilst operating solely in New Zealand, FMGIL’s premium base is more diversified geographically compared with other domestic general insurers, as its focus on the rural sector helps to spread its insured risks across the country.
