AM Best, the global credit rating agency, has reaffirmed the ratings for New Zealand Medical Indemnity Insurance Limited (NZMII), maintaining the financial strength rating at B+ and the long-term issuer credit rating at “bbb-.” Both ratings have been assigned a stable outlook.
This ratings affirmation reflects the assessed adequacy of NZMII’s balance sheet.
The firm boasts strong risk-adjusted capitalisation as of its fiscal year-end on March 31, 2023, supported by its conservative investment strategy focused on cash and fixed-income securities.
Despite its strengths, the company’s relatively modest capital base could pose challenges, particularly in terms of its ability to absorb financial shocks and its limited financial flexibility, as determined by Best’s Capital Adequacy Ratio (BCAR).
NZMII’s operational performance is deemed adequate, with a notable five-year average return-on-equity (ROE) of 14% across the fiscal years 2019 to 2023.
The insurer demonstrated significant operational improvements post-2021 due to strategic premium rate adjustments and a restructured investment portfolio aimed at reducing exposure to volatile assets.
For fiscal year 2023, the company achieved an impressive ROE of 15.7% and a combined operating ratio of 64.5%, signalling strong profitability and operational efficiency, according to AM Best’s calculations. Continued strong investment returns, with a five-year average net investment yield of 3.4%, further support the insurer’s financial health.
Despite potential risks from increased claims and higher operational costs, NZMII’s profitability is expected to remain robust.
The company’s market presence is considered limited, focusing solely on medical indemnity insurance for healthcare professionals within New Zealand. This niche focus results in limited geographic and product line diversification. However, NZMII’s connection with the New Zealand Resident Doctors’ Association facilitates ongoing access to its target market.
In terms of enterprise risk management (ERM), AM Best views NZMII’s approach as well-suited to its operational scale and the complexity of its business model.
A significant forthcoming challenge is the disbandment of district health boards in New Zealand, which historically have been instrumental in enabling NZMII’s market reach.
The company is proactively working with Health New Zealand, the new centralised healthcare authority, to ensure it continues to secure new business opportunities during and after this transition.
