AM Best downgrades Health Services Welfare Society Limited to negative

SINGAPORE–(BUSINESS WIRE)–am the best has changed the outlook from stable to negative, confirming the Financial Strength Rating of B+ (good) and Long-Term Issuer Credit Rating of “bbb-” (good) from Health Services Welfare Society Limited (New Zealand), trading as Accuro Health Insurance (Accuro).

The credit ratings reflect Accuro’s balance sheet strength, which AM Best considers reasonable, as well as the company’s reasonable operating performance, limited business profile and appropriate risk management.

The outlook change to negative reflects AM Best’s expectation of increased pressure on Accuro’s balance sheet strength fundamentals. In the medium term, a significant technology investment is expected to result in a significant deterioration in Accuro’s risk-adjusted capitalization as measured by Best’s capital adequacy ratio (BCAR). While the infrastructure investment is seen as important to Accuro’s long-term strategy and competitive position, those associated with the Technology upgrade related costs are expected to be significant and result in an increase in intangible assets on the Company’s balance sheet.

Other balance sheet considerations include the company’s relatively high underwriting leverage compared to other New Zealand health insurers and its small absolute capital base, which increase the sensitivity of capital adequacy to stress and/or performance fluctuations. During fiscal 2020, the Company’s investment risk increased by reallocating a portion of its portfolio from cash and short-term deposits to fixed income, equity and listed property holdings. Despite this change in investment strategy, the company’s bond holdings are generally of high credit quality and the overall investment portfolio is still considered low to medium risk. As a member-owned organization, AM Best believes Accuro’s financial flexibility is limited.

AM Best considers Accuro’s operating performance to be reasonable with a five-year average operating rate of 97.9% (fiscal years 2016-2020), albeit with moderate volatility over this period. The company’s claims volume declined in fiscal 2020 due to the postponement of elective surgeries amid the COVID-19 pandemic, resulting in an improvement in the company’s overall operating result for the year. However, claims activities are expected to pick up again in the 2021 financial year. AM Best anticipates that Accuro will maintain reasonable operating results, supported by a robust pricing strategy and positive investment returns.

Accuro is a non-profit organization providing health insurance in New Zealand. The limited assessment of the Company’s business profile reflects its relatively small operation and limited product and geographic diversification in New Zealand. Accuro is a small insurer in the New Zealand health insurance industry with a market share of less than 2% based on gross written premiums in 2020. Despite competitive market conditions, the company’s membership has grown over the past five years due to new product development, including various product improvements, that reinforce the value proposition.

Ratings are communicated to rated companies prior to publication. Unless otherwise stated, the ratings have not changed since this announcement.

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