AM Best confirms credit ratings of The Hollard Insurance Company Pty Ltd
SINGAPORE–(BUSINESS WIRE)–AM Best Affirmed The Hollard Insurance Company Pty Ltd (HIC) (Australia) financial strength rating of A- (Excellent) and issuer long-term credit rating of “a-” (Excellent). The outlook for these Credit Ratings (ratings) is stable.
The ratings reflect HIC’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The company’s balance sheet strength assessment is supported by its unconsolidated risk-adjusted capitalization, as measured by Best’s capital adequacy ratio (BCAR), which was at its highest level during the year. 2021, and should remain at least at the very high level looking forward. Since fiscal 2020, the company has made provisions for potential claims related to COVID-19 resulting primarily from business interruption covers in Australia. This provisioning has increased significantly during the 2021 financial year, while remaining subject to a high level of uncertainty given the ongoing legal proceedings regarding these policy covers in Australia. Despite this, HIC has a proven track record of financial flexibility and shareholder support, with recent capital injections helping to strengthen capital adequacy and offset capital consumption resulting from COVID-19 provisioning.
Other balance sheet strength considerations include the company’s moderate reliance on third-party reinsurance and its exposure to illiquid investments, including stakes in affiliated underwriting agencies. AM Best’s balance sheet strength analysis also incorporates a neutral impact on the holding company following a risk-adjusted consolidated capitalization assessment of HIC’s immediate parent, Hollard Holdings Australia Pty Ltd (HHA). AM Best continues to note the planned acquisition of Commonwealth Insurance Limited by HHA, which is expected to close in the second half of calendar year 2022. This transaction continues to be monitored by AM Best for any impact on the consolidated financial position of HHA, including following the final funding structure.
AM Best considers HIC’s operating performance to be adequate. The company recorded an average return on equity ratio of 1.9% between fiscal years 2017 to 2021 on a non-consolidated basis, with operating results trending significantly downward over the past two fiscal years, primarily due to increased provisions related to COVID-19. . The company reported an underwriting loss with a combined ratio of approximately 110% in fiscal 2021, which was partially offset by a positive revaluation of its strategic investments following a significant downward adjustment to the fair value during the previous year. Looking ahead, AM Best expects HIC’s operating profits to trend higher over the medium term as the company implements measures to improve claims experience across its core insurance product offerings. , as well as to reduce its expense ratio through increased operational scale. However, future provisioning revisions related to COVID-19 will remain a key driver of technical and operational results in the short term. As HIC prepares financial statements on a non-consolidated basis, AM Best considered the consolidated performance of HHA as part of the operational performance assessment. HHA consolidates the operations of HIC and all of its controlled strategic investments in underwriting agencies.
AM Best rates HIC’s business profile as neutral. The company is Australia’s fifth-largest non-life insurer based on gross written premiums, although it holds a modest market share of around 4% in 2021.
HIC maintains a strong market position in certain niche segments, including the pet insurance industry. The company has experienced strong premium growth over the past 10 years, supported by a diverse network of distribution partners and affiliated underwriting agencies in Australia and New Zealand.
AM Best considers HIC’s ERM to be appropriate given the size and complexity of the company’s operations. Due to HIC’s rapid expansion over the past few years, the company has been committed to continuously enhancing its risk management capabilities in line with increased operational scale and risk profile.
Ratings are communicated to rated entities before publication. Unless otherwise indicated, the ratings have not been changed as a result of this communication.
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