A.M. Best Affirms Ratings of China Insurance (NZ) Company Limited.OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating of B+ (Very Good) and the issuer credit rating of "bbb-" of China Insurance (NZ) Company Limited (CINZ CINZ Conventions & Incentives New Zealand ) (New Zealand New Zealand (zē`lənd), island country (2005 est. pop. 4,035,000), 104,454 sq mi (270,534 sq km), in the S Pacific Ocean, over 1,000 mi (1,600 km) SE of Australia. The capital is Wellington; the largest city and leading port is Auckland. ). The outlook for both ratings is stable. The ratings reflect the company's moderate capitalization, conservative investment portfolio and relatively favorable loss experience. A.M. Best expects the recent investments in technology to improve underwriting efficiency. The Best's Capital Adequacy Ratio Capital adequacy ratio (CAR), also called Capital to Risk (Weighted) Assets Ratio (CRAR)[], is a ratio of a bank's capital to its risk. National regulators track a bank's CAR to ensure that it can absorb a reasonable amount of loss. (BCAR BCAR Brunswick County Association of Realtors BCAR British Civil Airworthiness Requirements BCAR Bullitt County Animal Rescue (Shepherdsville, KY) BCAR Business Case Analysis Report BCAR Beaver Creek Array BCAR Buffalo Civic Auto Ramps, Inc. ), which measures capitalization on a risk- adjusted basis, indicates that the company is moderately capitalized. CINZ's capital and surplus declined to NZD NZD In currencies, this is the abbreviation for the New Zealand Dollar. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. 2.438 million (USD USD In currencies, this is the abbreviation for the U.S. Dollar. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. 1.66 million) in fiscal year 2005 from NZD 2.995 million (USD 2.15 million) in fiscal year 2004. Despite suffering a net loss in fiscal year 2005, CINZ expects a breakeven breakeven 1. The level of output or sales necessary to cover fixed expenses. Companies in industries that have high fixed costs and, consequently, high breakevens, such as automobile and steel manufacturing, are likely to exhibit large fluctuations result for fiscal year 2006. CINZ has maintained a liquid investment portfolio with 41.8% of total assets invested in cash, short-term deposits and government bonds. Given the short tail nature of CINZ's business, the asset mix greatly reduces liquidity risk. CINZ's loss ratio is consistently lower than that of the industry prior to 2005. The company's loss ratio was 63.9% in fiscal year 2005 compared to 61.5% the prior year. These positive factors are partially offset by CINZ's volatile operating performance, its reliance on parent company support and its moderate presence in New Zealand. Underwriting performance has been rather unstable. This volatility has been caused predominantly by fluctuating expenses. Notably, CINZ's expense ratio has fluctuated between 28.1% and 63.8% in the past five years. The five year average expense ratio was 45.7%. High expenses for 2005 were due to IT investments. The amount of investments is expected to be similar for 2006. A.M. Best remains cautious about the company's ability to sustain its business growth with a secure level of capitalization. CINZ's net premium leverage ratio deteriorated to 2.07 times in fiscal year 2005 from 1.58 times in fiscal year 2004. However, capital contributions in mid- 2006 have strengthened the company's risk adjusted capitalization. Premium rates across the board have weakened over the year. In a competitive market environment, the rates on insurance products would most likely be in line with the market as the company lacks pricing power Pricing Power An economic term referring to the effect that a change in a firm's product price has on the quantity demanded of that product. Pricing power ties in with the "Price Elasticity of Demand. . The softening of premium rates will result in pressure on CINZ's bottom line. As the company predominantly uses brokers, the effect of softening premiums will be quickly felt. For Best's Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings. A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com. |
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