SINGAPORE: Insurance sector rating agency, AM Best has affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” of Health Services Welfare Society Limited (New Zealand), trading as Accuro Health Insurance (Accuro). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect Accuro’s balance sheet strength, which AM Best categorises as adequate, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.

Accuro’s balance sheet strength assessment is supported by its risk-adjusted capitalisation, which remained at an adequate level in fiscal-year 2019, as measured by Best’s Capital Adequacy Ratio (BCAR). Other balance sheet considerations include the company’s relatively high underwriting leverage compared with other New Zealand health insurers and its small capital base, which increases the sensitivity of capital adequacy to stress scenarios or fluctuations in performance.

In addition, since September 2019, the company’s exposure to investment risk has increased as a result of shifting part of its portfolio from cash and short-term deposits to fixed income securities, equities and listed property holdings. Despite this change in investment strategy, the company’s bond holdings are typically of high credit quality, and the allocation to equities and property is a relatively small portion of its investment portfolio.

As a not-for-profit insurer, Accuro has no dividend commitments, with subsequent full retention of earnings; however, AM Best considers financial flexibility to be limited.

AM Best views Accuro’s operating performance to be adequate, as demonstrated by a five-year average operating ratio of 97.1% (fiscal-years 2015-2019), albeit with a moderate level of volatility over this period.

The company’s underwriting performance deteriorated in fiscal-year 2018, mainly owing to adverse claims experience. In response, the company increased prices across most of its products and continued re-balancing towards more profitable lines of business. Whilst these actions supported the reporting of an overall operating profit in fiscal-year 2019, the result remained lower compared with pre-2018 levels. Going forward, while the public health care system in New Zealand is responsible for the pandemic response to COVID-19, AM Best does expect a level of volatility in Accuro’s prospective loss experience.

For fiscal-year 2020, claims volumes are expected to fall from the deferral of elective surgeries during the country’s lockdown period, followed by a subsequent catch up in claims activity over the coming fiscal periods.

Accuro is a not-for-profit organization that provides health insurance in New Zealand. The company’s business profile assessment of limited is due to its relatively small-scale operations, and limited product and geographical diversification in New Zealand. It is a small insurer in New Zealand’s health insurance industry, with a market share of less than 2% based on gross premiums in 2019.

Despite challenging market conditions, membership has grown steadily over the past five years due to the development of new products, including various product enhancements bolstering the value proposition. Prospectively, Accuro’s top line may be negatively affected due to cancellations and weaker sales as a result of economic downturn related to COVID-19.