What the ratings agency said about Fidelity Life

AM Best has affirmed the financial strength rating of A- (Excellent) and the long-term issuer credit rating, also of A-, of Fidelity Life Assurance. The outlook of these credit ratings (ratings) is stable.

The ratings reflect Fidelity Life’s balance sheet strength, which AM Best categorises as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.

Fidelity Life’s balance sheet strength is underpinned by its risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which AM Best expects to remain at the strongest level over the medium term. The company’s financial flexibility is viewed to have improved since 2018, following a capital injection of $75 million by the New Zealand Superannuation Fund, to support future business growth.

AM Best notes that while the capital injection strengthened the company’s local regulatory solvency position, Fidelity has experienced some volatility in capital adequacy over recent years. AM Best expects prospective regulatory solvency to remain robust over the medium term, albeit sensitive to new business growth initiatives. A partially offsetting balance sheet factor remains the company’s dependence on third-party reinsurance, with over 40% of gross written premiums (GWP) ceded to reinsurers in fiscal-year 2019.

Fidelity Life has a track record of adequate operating performance, evidenced by a five-year average return on equity ratio of 7% (fiscal-years 2015-2019). The company’s positive operating results have been driven by the favourable underwriting performance of its in-force life business, coupled with robust investment returns. Nonetheless, operating profitability remains sensitive to prevailing market conditions in New Zealand, which have pressured new business margins in recent periods. Prospectively, AM Best expects that controlled underwriting growth, a robust pricing strategy and a programme of planned expense improvements will support the maintenance of adequate operating performance.

AM Best views Fidelity Life’s business profile as neutral, underpinned by its established position as one of the largest life insurers in New Zealand, with a domestic market share of approximately 11% based on 2019 in-force GWP. The company offers a range of life protection products, including term life, income protection and trauma cover. Fidelity Life’s core segments in the New Zealand life market remain highly competitive, and its business model continues to exhibit a reliance on the independent financial adviser channel for product distribution.