A.M. Best Affirms Credit Ratings of Sovereign Assurance Company Limited

A.M. Best has affirmed the Financial Strength Rating of A+ (Superior) and the Long-Term Issuer Credit Rating of “aa-” of Sovereign Assurance Company Limited (Sovereign) (New Zealand). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect Sovereign’s balance sheet strength, which A.M. Best categorizes as very strong, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management.

A.M. Best expects Sovereign’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), to be maintained at a very strong level. Despite a high dividend payout ratio, A.M. Best expects the company’s risk-adjusted capitalization to remain supportive of the current ratings, underpinned by a modest premium growth rate, robust earnings derived from in-force business and stable investment returns. Sovereign’s operating performance is strong, as demonstrated by a five-year average return on equity of approximately 13%.

Sovereign continues to be the largest life insurance company in New Zealand, with a market share of over 25%, based on in-force premium size. The company holds a competitive advantage through a multi-channel distribution network, benefiting from a well-established adviser channel and an affiliated bancassurance channel through its sister company, ASB Bank.

An offsetting rating factor is New Zealand’s highly competitive life insurance market, particularly in the adviser channel. This has resulted in some pressure on Sovereign’s level of new business volume. Nevertheless, A.M. Best notes that Sovereign has little appetite to grow or maintain its market share if it comes at the expense of lower-than-expected profitability.

Sovereign’s risk management capabilities are considered appropriately aligned with its risk profile. A.M. Best also will continue to monitor closely the progress of Sovereign’s acquisition by AIA Group Limited and evaluate developments for any impact on the ratings.

Upward rating action is unlikely in the near term. Downward rating pressure could result if there is significant deterioration in Sovereign’s risk-adjusted capitalization or operating performance. Additionally, the ratings could be downgraded if there is material deterioration in the consolidated financial condition of Sovereign’s ultimate parent.

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

This press release relates to Credit Ratings that have been published on A.M. 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 A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2017 by A.M. Best Rating Services, Inc. and/or its subsidiaries. ALL RIGHTS RESERVED.

View source version on businesswire.com: http://www.businesswire.com/news/home/20171215005802/en/