Best Affirms NZ’s Pioneer ‘B+ Rating; Revises Outlook to Negative

September 14, 2006

A.M. Best Co. has affirmed the financial strength rating of “B+” (Very Good) of New Zealand’s Pioneer Insurance Company Limited, but it has revised the outlook to negative from stable. Best also assigned an issuer credit rating of “bbb-” with a negative outlook.

“The outlook,” said Best, reflects its “opinion of the negative impact on Pioneer’s business position due to the pressures arising from the weak risk-adjusted capitalization to support the expected growth, coupled with deteriorated underwriting profitability for the fiscal year-end March 2006. The rating also factors A.M. Best’s view of Pioneer’s lower prospective earnings.”

Best’s report pointed out that “despite the strong premium development over the past two years, Pioneer delivered unfavorable underwriting results in fiscal year 2006. The company recorded a net underwriting loss. Both the loss ratio and expense ratio deteriorated with a combined ratio of about 100 percent. The substantial increase of the expense ratio has exerted pressure on the underwriting margin. The deterioration of the underwriting performance may diminish Pioneer’s prospective business position.”

The rating agency continued its analysis as follows: “As a new start-up, the company’s risk-based capitalization remains weak due to the aggressive business growth. Going forward, Pioneer must strengthen its capital position to support business growth.

“Apart from the pressure on the risk-based capitalization and underwriting performance, the aggressive premium growth also caused strain in Pioneer’s operational capacity, such as accounting and administrative issues in the distribution channel’s management. A.M. Best recognized the continued efforts of Pioneer’s management in turning around the situation and developing a profitable portfolio. It is challenging yet necessary for Pioneer to strengthen its internal control and monitoring system prior to further growing its portfolio.

While the prospective results may be negatively influenced by the operating performance, A.M. Best remains cautious of Pioneer’s growth as any aggressive business growth could put further strain on the company’s risk-based capitalization and its rating stability.”

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