AM Best has upgraded the Financial Strength Rating to B++ (Good) from B+ (Good) and the Long-Term Issuer Credit Rating to "bbb" from "bbb-" of DPL Insurance Limited (DPL) (New Zealand). The outlook of these Credit Ratings (ratings) has been revised to stable from positive.
The ratings reflect DPL’s balance sheet strength, which AM Best categorises as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. The ratings also factor in a neutral impact from the company’s ultimate ownership by Turners Automotive Group Limited (Turners), a motor vehicle retailer and financial services group in New Zealand.
The rating upgrades reflect an improvement in AM Best’s assessment of the company’s balance sheet strength. DPL’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), has exhibited an improving trend over the past three years, and remained at the strongest level in fiscal years 2019 and 2020. Prospectively, AM Best expects that controlled growth, robust underwriting performance and appropriate retention of overall earnings will help DPL maintain its risk-adjusted capitalisation at the strongest level over the medium term. A partially offsetting balance sheet factor remains the significant volume of intangible assets from the company’s acquisition of Autosure’s business in 2017; this includes goodwill items relating to the brand name and acquired agency relationships.
DPL has a track record of adequate operating performance, as evidenced by a five-year average return-on-equity ratio of 7.9% (fiscal years 2016 to 2020). The company’s combined ratio improved to 93.9% in fiscal year 2020 from 96.0% in fiscal year 2019, primarily driven by DPL’s initiatives to enhance pricing and risk selection for its core insurance products. Investment returns remain a key driver of DPL's operating performance, with the company's net investment yield (excluding gains/losses) remaining consistently above 3% over the last three fiscal years.
AM Best views the company’s business profile as limited given its niche and relatively modest scale of operations. In addition, DPL’s core lines of business, including mechanical breakdown insurance for motor vehicles in New Zealand, remain subject to competitive market conditions as well as the potential for fluctuations in used car sales in the near term due to disruption driven by the COVID-19 pandemic. Despite this, DPL’s ownership and affiliation with its parent, Turners, which is the largest retailer of used motor vehicles in New Zealand, provides good access to business and creates a valuable distribution network.
AM Best considers DPL’s approach to risk management to be appropriate given the size and complexity of its current operations. DPL also is viewed to benefit from a level of risk management oversight and governance from the Turners group.
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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