Fitch Affirms Rating to Credit Union Insurance Limited 'BB+'/Stable

Fri May 30, 2014 1:51am EDT

Related Topics

(The following statement was released by the rating agency) SYDNEY, May 30 (Fitch) Fitch Ratings has affirmed New Zealand-based Credit Union Insurance Ltd (CUIL) at Insurer Financial Strength (IFS) rating of 'BB+'. The Outlook is Stable. KEY RATING DRIVERS CUIL's rating reflects a solid business profile and conservative risk management settings. Offering simple, short tail insurance products tailored to the needs of its credit union members, CUIL has a strong technical 'risk-based' level of capitalisation, offsets insurance exposure through prudent reinsurance arrangements and has a low-risk approach in its investment portfolio. Constraining the rating is its small size and market position, and limited financial flexibility. CUIL has strong distribution channels through its credit union owners and access to a large membership base of around 186,000. Its motor and life insurance products are relatively easy to sell and exhibit good growth prospects. CUIL's capital adequacy is very strong based on a technical risk-based calculation with current risk exposures being modest relative to minimum regulatory capital requirements. With total equity of NZD5.6m at end-December 2013, capital is low on an absolute basis, and this leaves CUIL more exposed to larger operational risks, or changes in the external operating environment. Operational risks appear to be well managed, and CUIL's high degree of integration with the NZACU is positive in mitigating these risks. Reinsurance cover is purchased to protect the motor portfolio against large single losses or from an accumulation of losses, and limits CUIL's maximum retention to NZD100,000. A conservative investment approach is reflected in a 100% allocation to on-call cash or short term deposits. The company has a large related party exposure in the form of its on-call cash deposits with the NZACU whose low risk approach to investments, used to manage member credit unions' liquidity, helps mitigate this counterparty risk. RATING SENSITIVITIES Triggers for a downgrade: The unexpected withdrawal of support from CUIL's ultimate shareholders would result in a downgrade. CUIL could also be downgraded should it fail to maintain solid solvency margins above the regulatory requirement of NZD5m. A prudential failure to comply with solvency requirements would have serious implications and could result in the withdrawal of the company's license. Triggers for an upgrade: Fitch considers this unlikely over the rating horizon given the company's small size and limited market position. In addition, CUIL would need to significantly improve its standalone financial flexibility while maintaining strong capital ratios and its conservative risk appetite. Contacts: Analysts John Birch Director +61 2 8256 0345 Fitch Australia Pty Ltd, Level 15, 77 King Street, Sydney, NSW 2000 Tim Roche Senior Director +61 2 8256 0310 Committee Chairman Jeff Liew Senior Director +852 2263 9939 Media Relations: Leni Vu, Sydney, Tel: +61 2 8256 0325, Email: Leni.Vu@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, "Insurance Rating Methodology" dated 13 November 2013, are available at www.fitchratings.com. Applicable Criteria and Related Research: Insurance Rating Methodology here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S FREE WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Fitch Australia Pty Ltd holds an Australian financial services licence (AFS licence no. 337123) which authorises it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.

FILED UNDER: