AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of Police Health Plan Limited (PHP) (New Zealand). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect PHP’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile, and appropriate enterprise risk management. In addition, the ratings factor in a neutral impact from the company’s ultimate ownership by the New Zealand Police Association (NZPA).
PHP’s balance sheet strength assessment is underpinned by its risk-adjusted capitalization which remains at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). This reflects the company’s moderate underwriting leverage and conservative investment approach. As a mutual insurer, AM Best views the company’s financial flexibility as limited, although this is partially mitigated by its prudent capital management and track record of robust internal capital generation. An offsetting balance sheet factor is the company’s modest capital base, which increases the sensitivity of capital adequacy to stress scenarios or fluctuations in performance.
AM Best assesses PHP’s operating performance as adequate, with a five-year average return-on-equity ratio of 6.3% for fiscal years 2017-2021, albeit with a moderate level of volatility over this period. PHP benefits from an efficient cost structure that allows it to offer competitive health coverage and premiums to its members. As a not-for-profit insurer, PHP’s strategy is to achieve near break-even operating results over time. The company has reported robust operating earnings over the past three years, mainly driven by favorable claims experience. Prospectively, AM Best expects PHP to maintain long-term performance close to break-even despite lower underwriting results and some volatility in its investment returns, which may be impacted by the rise in interest rates. However, if its claims experience deteriorates significantly more than expected, the company has the ability to adjust premium rates rapidly as proven in the past.
PHP provides health insurance exclusively to current and former members of the New Zealand police force and their families. Despite having a market share of less than 3% in New Zealand’s health insurance market, the company’s business profile assessment factors in its high penetration rate within the police force and its close integration with its ultimate parent, NZPA. PHP has preferential access to its member base, benefits from low distribution costs, and shares overheads with the broader group. The company’s membership has grown steadily in recent years due to government initiatives aimed at expanding the police force.
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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