AM Best has removed from under review with developing implications and affirmed the Financial Strength Rating of A+ (Superior) and the Long-Term Issuer Credit Rating of aa- of Sovereign Assurance Company Limited (Sovereign) (New Zealand). The outlook assigned to these Credit Ratings (ratings) is stable.
The latest rating actions follow the conclusion of AM Bests full assessment of the impact of Sovereigns change in ownership. The ratings were previously placed under review with developing implications following the announcement that AIA International Limited, a wholly owned subsidiary of AIA Group Limited (AIA), had completed its acquisition of Sovereign from the Commonwealth Bank of Australia (Commonwealth Bank).
The ratings reflect Sovereigns balance sheet strength, which AM Best categorizes as very strong, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management. In addition, Sovereign benefits from rating enhancement from AIA.
Sovereigns balance sheet strength is underpinned by its risk-adjusted capitalization, which AM Best expects to remain at the strongest level over the medium term, as measured by Bests Capital Adequacy Ratio (BCAR). In addition, the companys local regulatory solvency position in New Zealand is expected to be maintained at an appropriate level, supported by AIAs capital management strategy and AM Bests expectation that financial support from the parent will be forthcoming, if required. A partially offsetting balance sheet factor is the companys increased reinsurance utilization. Since the acquisition by AIA, Sovereign has ceded a notable portion of its existing in-force protection portfolio to a third-party reinsurer.
The company has a track record of strong operating performance, as evidenced by a five-year average return on equity ratio of 15% (fiscal years 2014 to 2018), which is not expected to change over the medium term. Sovereigns business profile continues to be viewed as favorable. The company remains the largest life insurer in New Zealand, with its market share (new and in-force business) exceeding 25%. Prospectively, AM Best expects the introduction of AIA Vitality at Sovereign, which is a product already offered elsewhere in the AIA group, to support profitable growth in the health and life protection sector. Sovereign also benefits from a 20-year strategic bancassurance partnership that is in place between AIA and ASB Bank Limited, a wholly owned subsidiary of the Commonwealth Bank.
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Sovereigns ratings incorporate rating enhancement from AIA, one of the worlds largest life insurance groups. Sovereign is ultimately wholly owned by AIA, and while the subsidiary accounts for a small component of the groups overall revenues and earnings, the acquisition is viewed to notably grow the groups presence in New Zealand and supports its strategy of developing long-term strategic bancassurance partnerships. Sovereign is expected to complete its transition to operate under the AIA brand in 2019.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
This press release relates to Credit Ratings that have been published on AM Bests 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 AM Bests Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Bests Credit Ratings. For information on the proper media use of Bests Credit Ratings and AM Best press releases, please view Guide for Media – Proper Use of Bests Credit Ratings and AM Best Rating Action Press Releases.
AM Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.
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