AM Best has assigned a Financial Strength Rating of A- (Excellent) and a Long-Term Issuer Credit Rating of “a-” (Excellent) to Fidelity Insurance Limited (Fidelity Insurance) (New Zealand). The outlook assigned to these Credit Ratings (ratings) is stable.
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The ratings assigned to Fidelity Insurance reflect its 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 (ERM). The ratings also factor in a neutral impact from the company’s ultimate ownership by Fidelity Life Assurance Company Limited (Fidelity Life Assurance).
On 28 February 2022, Fidelity Life Assurance acquired Westpac Banking Corporation’s (Westpac group) New Zealand life insurance business, Westpac Life-NZ- Limited. The transaction, previously announced in July 2021, also includes the establishment of an exclusive 15-year life insurance distribution arrangement with Westpac New Zealand Limited (WNZL), a subsidiary of Westpac group involved in banking operations in New Zealand. Following the transaction, Westpac Life-NZ- Limited has been renamed as Fidelity Insurance Limited.
Fidelity Insurance’s balance sheet strength assessment is underpinned by its risk-adjusted capitalisation, which was at the strongest level as of fiscal year end 2021 and is expected to remain at this level over the medium term, as measured by Best’s Capital Adequacy Ratio (BCAR). While the company has exhibited an elevated dividend payout ratio over the past five years, retained earnings have remained sufficient to support new business growth and maintain robust regulatory solvency coverage. Other balance sheet factors include Fidelity Insurance’s conservative investment strategy with a focus on cash, term deposits and high quality fixed-income securities.
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AM Best views Fidelity Insurance’s operating performance as adequate, with the company having reported a five-year average return-on-equity ratio of 19.1% (fiscal years 2017-2021). Overall earnings have been driven by robust underwriting performance from the company’s in-force life business, underpinned by favourable claims experience and a low expense ratio. Prospectively, AM Best expects the company to exhibit a higher expense ratio as a result of increased infrastructure, staffing and integration costs following its acquisition by Fidelity Life Assurance, as well as due to recent changes in its distribution arrangements. However, overall earnings are expected to remain supportive of an adequate operating performance assessment.
The business profile assessment reflects Fidelity Insurance’s position as a medium-size insurer in New Zealand’s life insurance industry, with a market share of approximately 6% based on in-force gross written premiums. The company benefits from a strong distribution network driven by the establishment of an exclusive 15-year arrangement with WNZL to distribute Fidelity Insurance’s products to its retail customers.
Following its recent acquisition by Fidelity Life Assurance, the company is expected to operate as a subsidiary over the near term, although the parent is expected to consider further integration options over time. Fidelity Insurance is considered strategically important to Fidelity Life Assurance as it aids to increase the group’s operational scale and market share, as well as diversify its distribution channels through the bancassurance arrangement with WNZL. Going forward, Fidelity Insurance is expected to account for a significant component of consolidated premium income and earnings of Fidelity Life Assurance.
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