AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of "bbb+" of Co-operative Life Limited (Co-op Life) (New Zealand). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Co-op Life’s balance sheet strength, which AM Best categorises as adequate, as well as its strong operating performance, limited business profile and appropriate enterprise risk management. In addition, the ratings factor in a neutral impact from the company’s ultimate ownership by The Co-operative Bank Limited (Co-op Bank).
Co-op Life’s balance sheet strength assessment is underpinned by its risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which remains at the strongest level as of fiscal year-end 2020. This reflects the company’s low underwriting leverage, moderate reliance on third-party reinsurance and conservative investment strategy. Offsetting balance sheet factors include the company’s small absolute capital base, which increases the sensitivity of capital adequacy to shock events, as well as to changes in future performance, dividend payouts and the size of intangible assets.
Co-op Life has a track record of strong operating performance, with the company having reported a five-year average return-on-equity ratio of 28.6% (fiscal-years 2016-2020). Profitability continues to be driven by the strong underwriting performance of its in-force life business, coupled with low single-digit but stable investment returns. Prospectively, AM Best expects that the company’s steady revenue growth and robust pricing strategy, coupled with a stable stream of investment income, will help maintain strong operating performance over the medium term.
Co-op Life is a small-sized life insurer in New Zealand, focused mainly on the provision of term life and loan protection insurance products to customers of its parent, Co-op Bank. Although Co-op Life benefits from distributing its products through its parent’s banking network, the company maintains a relatively low penetration rate among the bank’s customer base. Co-op Life’s limited business profile assessment is largely a result of its small-scale of operations, as well as its limited product and geographic diversification. The company has a market share of less than 1% in New Zealand’s life insurance industry, based on 2020 gross written premiums. Prospectively, Co-op Life’s top line may be challenged over the medium term due to policy cancellations and weaker sales as a result of the economic downturn related to the COVID-19 pandemic.
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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