AM Best Revises Outlooks to Negative for Consumer Insurance Services Limited

SINGAPORE–(BUSINESS WIRE)–AM Best has revised the outlooks to negative from stable and
affirmed the Financial Strength Rating of B++ (Good) and the Long-Term
Issuer Credit Rating of “bbb” of Consumer Insurance Services Limited
(CISL) (New Zealand).

The negative Credit Rating (rating) outlooks reflect the company’s
diminishing business profile as a result of commencing to run off its
insurance operations during 2019, as well as the increased potential for
regulatory and operational risks arising from ongoing regulatory reviews
surrounding the conduct and culture in New Zealand’s insurance market,
in addition to product value creation.

The ratings reflect CISL’s balance sheet strength, which AM Best
categorizes as adequate, as well as its adequate operating performance,
limited business profile and appropriate enterprise risk management
(ERM). The ratings also factor in a neutral impact from the company’s
ultimate majority ownership by FlexiGroup Limited.

CISL’s balance sheet strength is underpinned by the company’s
risk-adjusted capitalization, as measured by Best’s Capital Adequacy
Ratio (BCAR), which is categorized as strongest. Despite the company
entering into a run-off status during 2019, AM Best expects capital
adequacy to remain at the strongest level over the medium term,
supported by a gradual decline in underwriting risks and continued
robust internal capital generation. A partially offsetting balance sheet
factor is CISL’s very small absolute capital base, which increases its
sensitivity to stressed scenarios.

AM Best considers CISL’s operating performance to be adequate. The
company has reported a five-year average return on equity ratio of 30%
(fiscal-years 2014 to 2018), albeit with moderate volatility in some
years. The company’s operating results over the past five years have
been driven by favorable claims experience from its sole product
offering of credit card repayment protection insurance. The company’s
five-year average combined ratio for fiscal-years 2014 to 2018 was 66%.
Prospectively, AM Best expects underwriting performance to show a
deteriorating trend, following the planned implementation of several
product coverage enhancements for all existing policyholders. Despite
these product adjustments, AM Best expects CISL’s underwriting and
operating performance to remain at an adequate level over the medium

AM Best views CISL’s business profile as limited, reflecting its small
scale of operations and niche position as a provider of credit card
repayment protection for cardholder customers of its parent, FlexiGroup
(New Zealand) Limited. The company ceased writing new business from
November 2018 and renewal business from April 2019. AM Best expects
CISL’s existing policyholder obligations to run off over the course of
approximately five years.

AM Best views the company’s ERM framework to be appropriate given the
current size and complexity of its operations. AM Best continues to
monitor the impact of regulatory challenges in relation to product value
creation, as well as conduct and culture in New Zealand’s insurance
market. Any resulting increase in regulatory or operational risk for
CISL likely will drive a mismatch between the company’s risk management
profile and capability.

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

This press release relates to Credit Ratings that have been published
on AM 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 AM Best’s
Rating Activity
web page. For additional information
regarding the use and limitations of Credit Rating opinions, please view
Best’s Credit Ratings
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Yi Ding
Financial Analyst
+65 6303 5021

Christopher Sharkey
Manager, Public Relations
908 439 2200, ext. 5159

Myles Gould
Associate Director, Analytics
6303 5020

Jim Peavy
Director, Public Relations
+1 908
439 2200, ext. 5644