AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of Ansvar Insurance Limited (Ansvar) (Australia). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Ansvar’s balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management. In addition, Ansvar’s ratings factor in rating enhancement to reflect its ownership, integration and support from Ecclesiastical Insurance Office plc (EIO).
Ansvar’s balance sheet strength is underpinned by its risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which was at the very strong level at year-end 2022 and is expected to remain at this level over the medium term. Ansvar has a track record of financial flexibility, with a series of capital injections totalling AUD 39 million from its shareholders between 2020 and 2022, which helped bolster capital adequacy. Ansvar experienced a higher-than-expected volume of physical and sexual abuse (PSA) claims in recent years, predominantly arising from legacy exposures. Whilst there remains a high level of uncertainty surrounding provisioning in this area, Ansvar’s net exposure is limited by a PSA excess-of-loss cover provided by EIO. Other balance sheet considerations include the company’s low-risk investment portfolio and high reinsurance dependence to support the underwriting of large limit property risks and long-tail liability exposures.
AM Best assesses Ansvar’s operating performance as marginal, with a five-year weighted average return-on-equity ratio of -2.0% (2018-2022). Operating performance metrics exhibited heightened volatility over this period, predominantly as a result of weather-related events and PSA claims. In 2022, the company recorded a return on equity of 0.4% and a pre-tax profit of AUD 1 million, supported by reinsurance recoveries arising from a stop loss programme with EIO.
Ansvar is a niche insurer that provides general insurance products to its target customer groups in Australia, including care, community, faith, education, heritage and property owners. Its core product offerings are commercial property and casualty. Ansvar has a long-established presence in its targeted niche sectors in which it leverages its strong expertise and reputation. This advantage is offset partially by the company’s limited control over distribution, due to its reliance on non-affiliated intermediary channels, which exposes it to the strong competitive pressures in Australia’s general insurance market.
Ansvar’s ratings incorporate rating enhancement from EIO, a U.K.-based insurance group that specialises in providing commercial insurance to the faith, heritage, charity, education and real estate sectors. EIO is itself a member of the specialty insurance, investment and broker and advisory group, Benefact Group plc. The rating enhancement reflects explicit support from EIO, including a series of capital injections and significant intra-group reinsurance protection to Ansvar. Both the PSA excess-of-loss cover and stop loss programme have been renewed for 2023, with these reinsurance arrangements expected to substantially limit downside risk to Ansvar’s operating performance and balance sheet strength fundamentals over the near term. Prospectively, AM Best expects group support to remain available if Ansvar’s performance volatility persists.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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