A.M. Best Assigns Ratings to The Hollard Insurance Company Pty Ltd

A.M. Best has assigned a financial strength rating of A- (Excellent) and an issuer credit rating of “a-” to The Hollard Insurance Company Pty Ltd (HIC) (Australia). The outlook assigned to both ratings is stable.

Formed in 1999, HIC is a direct general insurer domiciled in Australia. It major product offerings include pet health insurance, domestic motor, householders and commercial insurance. The company is a subsidiary of Hollard Investments B.V., which also owns Greenstone Ltd, an underwriting agency that designs, markets, distributes and administers personal insurance products.

The assigned ratings mainly reflect HIC’s adequate risk-adjusted capitalization and good operating performance. The ratings also take into consideration the financial support provided from its parent entities, which includes capital infusions, hybrid capital and contingent capital facilities.

HIC’s risk-adjusted capitalization is expected to be maintained at an adequate level, as measured by Best’s Capital Adequacy Ratio (BCAR). Despite the rapid expansion plans, which target an annual growth rate in gross premiums in excess of 20%, the company’s risk-adjusted capitalization is expected to remain supportive of the assigned ratings, underpinned by the good underlying profitability of its business, as well as on-going financial support from its parent entities. The operating performance of HIC is deemed to be good, reporting an average return on capital at above 12% over a five-year period.

The major offsetting factor in HIC’s rating assessment is its relatively high underwriting leverage. With a net premium-to-capital ratio of around 2.5 times, the company’s premium leverage is generally higher than its peers; this makes return on capital relatively more sensitive to unexpected adverse shocks in underwriting results, as is the case with its fiscal year 2015 results.

Key factors that could lead to negative rating actions include incorrect underwriting decisions and inadequate product pricing that result in material deviations from the expected improvement in operating performance or risk-adjusted capitalization. Additionally, the ratings may experience downward pressure if there is diminished support from the company’s parent entities in terms of capital.

Ratings are communicated to rated entities prior to publication, and unless stated otherwise, the ratings were not amended subsequent to that communication.

This press release relates to rating(s) that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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