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Kiwibank's life insurer gets 'a-' credit rating from AM Best

Thursday 20th September 2012

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State-owned lender Kiwibank's life insurance unit, Kiwi Life Insurance, has been assigned an 'a-' credit rating by AM Best on the strength of the overall group's balance sheet.

The rating agency's assessment reflects the insurer's profitable operating performance over the past five years with an average return on equity of 25 percent, and its "status as a member of the New Zealand Post Ltd group of companies, its operating performance and balance sheet strength," AM Best said in a statement. The insurer's financial strength was rated A (Excellent).

"Capital requirements to support Kiwi Insurance's underwriting risks are well supported by its capital, and any drag from capitalised acquisition costs is minimal," AM Best said. "Due to a higher risk retention and low earnings retention, Kiwi Insurance's BCAR (Best's Capital Adequacy Ratio) is expected to stabilise at a lower level that is in line with its assigned ratings."

Parent Kiwibank, itself a subsidiary of NZ Post, more than tripled annual earnings to a record $79 million in the 12 months ended June 30 after booking a smaller charge from bad debts and squeezing fatter margins from floating mortgage rates.

AM Best said the insurance unit is bringing previously outsourced policy administration functions in-house in a bid to lift risk retention and exert greater control over client relationships and the design of its products.

"It is unclear how well Kiwi Insurance's new staff and technology resources will cope with its new operational environment," the rating agency said.

Kiwibank's push into the life insurance market comes after it expanded its footprint in wealth management with the acquisition of Gareth Morgan Investments this year. The purchase added some $1.5 billion of funds under management and 57,000 more clients.

The insurer is also vulnerable to "adverse developments" from NZ Post and Kiwibank, with any cost cutting programmes or capital constraints a risk to Kiwi Insurance's operations and ability to attract new business.

NZ Post is overhauling its structure as a shift away from traditional 'snail mail' erodes postal revenue and has been exiting some businesses as it moves to a slimmer operation.

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