AM Best has affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb+” (Fair) of Quest Insurance Group Limited (Quest) (New Zealand). The outlook of these Credit Ratings (ratings) is stable.
These ratings reflect Quest’s balance sheet strength, which AM Best assesses as adequate, 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 majority shareholder, Federal Pacific Group Limited.
Quest’s balance sheet strength assessment is underpinned by its risk-adjusted capitalisation, which was at the strongest level as at fiscal year end (31 March) 2023, as measured by Best’s Capital Adequacy Ratio (BCAR). Prospectively, AM Best expects the company’s risk-adjusted capitalisation to remain at least at the very strong level, supported by its prudent capital management policy, with dividends payable only when there is a buffer in the regulatory solvency capital. Offsetting balance sheet strength factors include a material affiliated asset which weakens the company's quality of capital. In addition, Quest has a small absolute capital base, which increases the sensitivity of risk-adjusted capitalisation to stress scenarios.
AM Best assesses Quest’s operating performance as adequate. The company has a five-year average return-on-equity ratio of 20.3% (fiscal years 2019 to 2023) and the overall earnings reflect robust underwriting performance and positive investment returns. However, rapid business growth in the less profitable comprehensive vehicle insurance (CVI) has resulted in a higher loss ratio in recent years.
Quest’s business profile assessment of limited reflects its small market presence, geographic concentration and relatively niche product offering, largely as a provider of CVI and mechanical breakdown insurance in New Zealand. The company’s scale of operation has increased significantly in recent years, driven by both the growth in Quest’s direct distribution channels and a strategic partnership with Janssen Insurance Limited (Janssen), a third-party distributor of motor-related insurance. Janssen accounts for over half of Quest’s gross written premiums in fiscal year 2023, creating concentration risk to this distribution partner.
AM Best assesses Quest’s ERM as appropriate given the current size and complexity of its operations. The company remains exposed to elevated levels of underwriting and execution risk following recent business expansion. However, this risk has been mitigated partially to date through adequate monitoring of underwriting performance, and a conservative approach to pricing and reserving supported by a third-party actuary.
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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