AM Best Upgrades Credit Ratings for Provident Insurance Corporation Limited
AM Best has upgraded Provident Insurance Corporation Limited’s (PICL) Financial Strength Rating (FSR) from B (Fair) to B+ (Good) and its Long-Term Issuer Credit Rating (ICR) from “bb+” (Fair) to “bbb-” (Good). Additionally, the outlook for these ratings has been revised to stable from positive.
The ratings reflect PICL’s financial strength, which AM Best considers adequate, alongside its solid operating performance, business profile, and effective enterprise risk management (ERM). These upgrades reflect a sustained improvement in the company’s risk-adjusted capitalization, signaling robust financial health.
One of the key factors contributing to the upgrade is the notable improvement in PICL’s risk-adjusted capitalization, as assessed by AM Best’s Best’s Capital Adequacy Ratio (BCAR). As of fiscal year-end 2024, the company’s capitalization was categorized as very strong. AM Best anticipates that PICL’s capitalization will remain at least at the strong level over the medium term, supported by the company’s internal capital generation. This includes its plans for partial share redemptions and its business growth strategies. Additionally, PICL’s conservative investment approach and solid regulatory solvency position are positive elements supporting its balance sheet strength.
However, PICL’s balance sheet also faces certain challenges, such as its exposure to long-duration policies, which increase reserving risk. Despite this, the company has demonstrated prudent reserving practices and a solid history of maintaining reserve adequacy, helping mitigate the risks associated with its long-duration liabilities.
AM Best considers PICL’s operating performance to be adequate. The company has consistently demonstrated positive underwriting performance and strong investment returns. For fiscal year 2024, PICL achieved a return-on-equity ratio of 15.2% and a combined ratio (net/net, IFRS 17) of 96.9%, as calculated by AM Best. The company’s operating performance has been bolstered by significant investments in information technology and pricing capabilities to support its growth trajectory. These investments contributed to an elevated expense ratio at year-end 2024, though AM Best expects this ratio to normalize in the near future as these initiatives begin to yield further operational efficiencies.
PICL’s business profile remains limited, a factor that contributed to the company’s rating. This is due to the relatively modest scale of its operations and the fact that its business is concentrated within New Zealand. PICL operates as a niche insurer, primarily focusing on mechanical breakdown and private motor vehicle insurance. The company distributes its products through motor dealerships and other distribution partners across its domestic market. PICL is exposed to moderate pricing risk, mainly due to its multi-year policies, particularly in its mechanical breakdown insurance segment.
In terms of enterprise risk management (ERM), AM Best views PICL’s efforts as appropriate given the company’s operational scale and complexity. While the execution of its growth strategy remains a key risk, this has been mitigated through investments in technology and internal capabilities. AM Best expects the company’s risk management capabilities to continue evolving and strengthening, which will be crucial in supporting its operational expansion.
The ratings assigned to PICL were communicated prior to publication and have not been amended following that communication. While the company continues to face risks associated with its business scale and geographic concentration, the positive trajectory in capitalization, operating performance, and risk management are central to its improved outlook.
In conclusion, the rating upgrades reflect PICL’s ongoing financial stability and its capacity to manage growth effectively, positioning the company for continued success in the competitive insurance sector.
