Fledgling Kiwibank insurance business Kiwi Life issued strong credit ratings by AM Best based on NZ Post relationship

Kiwibank's fledgling life insurance unit, Kiwi Life Insurance Ltd, has been assigned strong credit ratings by AM Best Company reflecting its position, like Kiwibank, as a subsidiary of New Zealand Post.

AM Best, a credit rating agency specialising in the insurance sector, has given Kiwi Life an A- financial strength rating, and an a- issuer credit rating, both with a stable outlook.

A financial strength rating is an opinion of an insurer's financial strength and ability to meet its ongoing insurance policy and contract obligations. An A- rating is regarded as "secure" by AM Best, as opposed to "vulnerable", and "excellent." AM Best's issuer credit rating is an opinion of an entity's ability to meet its ongoing senior financial obligations. The a- rating is investment grade and regarded as "excellent."

"The assigned ratings reflect Kiwi Insurance’s status as a member of the New Zealand Post Limited group of companies, its operating performance and balance sheet strength," AM Best said.

"Access to NZ Post’s nationwide network and customer base helps to minimise Kiwi Insurance’s distribution costs. This strengthens Kiwi Insurance’s earnings quality due to its low amount of capitalised acquisition costs. Cost efficiencies from using shared group resources also contribute to Kiwi Insurance’s low cost structure."

Kiwibank CEO Paul Brock said last month the push into life insurance will see Kiwi Life selling insurance to customers through Kiwibank's banking network that's cheaper than insurance sold by insurance brokers.

Kiwibank has been selling the likes of house, contents, motor vehicle and travel cover and health insurance through outsourced providers since 2002 via Kiwi Insurance. It's now beginning to bring these functions in-house. One of Kiwibank's conditions of registration with the Reserve Bank is that the banking group's insurance business isn't greater than 1% of its total consolidated assets. Its insurance operations are therefore a sister company and subsidiary of Kiwi Group Holdings, a holding company of Kiwibank's parent New Zealand Post.

"Kiwi Insurance has shown a profitable operating performance in the past five years," AM Best said. "Return on equity averaged 25%, despite full earnings retention and a substantial capital injection in 2011.
Kiwi Insurance’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), is strong. Capital requirements to support Kiwi Insurance’s underwriting risks are well supported by its capital, and any drag from capitalised acquisition costs is minimal. Going forward, due to higher risk retention and low earnings retention, Kiwi Insurance’s BCAR is expected to stabilise at a lower level that is in line with its assigned ratings."

Partially offsetting the positive rating factors is the relatively short history of Kiwi Insurance’s book of business, AM Best said, and potential operational risks and vulnerability to adverse developments at NZ Post.

"While Kiwi Insurance’s experience profits have been good so far, underwriting statistics such as claims ratios will likely develop as the book ages. At what level the ratios stabilise remains to be seen."