AM Best Affirms Credit Ratings of New Zealand Medical Indemnity Insurance Limited

AM Best has affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” (Good) of New Zealand Medical Indemnity Insurance Limited (NZMII) (New Zealand). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect NZMII’s balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).

NZMII’s balance sheet strength is underpinned by its risk-adjusted capitalisation, which is expected to remain at the strongest level over the medium term, as measured by Best’s Capital Adequacy Ratio (BCAR). Partially offsetting this balance sheet strength factor is the company’s limited financial flexibility and its small absolute capital base, which increases the sensitivity of capital adequacy to shock events. In addition, internal capital generation has been limited due to elevated levels of dividend distribution in recent years.

AM Best views NZMII’s operating performance as adequate, as demonstrated by a five-year average return-on-equity ratio of 11.8 % (fiscal-years 2018-2022). Following a period of unfavourable claims experience in fiscal-years 2018 and 2019, NZMII’s underwriting performance improved over the last three fiscal-years (2020-2022) as a result of remedial actions taken by management, including premium rate adjustments. In fiscal-year 2022, NZMII reported robust underwriting results with a combined ratio of 65.5% driven by favourable claims experience, in part due to COVID-19-related restrictions. Overall earnings are supported by NZMII’s investment income with the company having reported a five-year average net investment yield (including gains) of 4.4% (fiscal-years 2018-2022).

AM Best views NZMII’s business profile as limited given its position as a small and niche insurer in New Zealand providing medical indemnity insurance to medical practitioners and health professionals. The company’s claims consist largely of legal fees excluding medical injury costs. As a monoline insurer with operations in a single country, the company is viewed as having limited geographic and product diversifications. Access to new business is supported by its affiliation with the New Zealand Resident Doctors’ Association.

NZMII’s ERM is viewed as appropriate given the size and complexity of its operations. A key emerging risk over the medium to long term is the disestablishment of district health boards in New Zealand, which provide considerable support to the company in accessing new business. However, the company’s management has taken measures to mitigate this risk by actively engaging with the new centralised body replacing the district health boards, Health New Zealand, to smooth the transition and to maintain access to new business prospectively.

Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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