Company’s credit ratings boosted
AM Best has upgraded Provident Insurance’s rating for financial strength to B+ (good) from B (fair).
In addition, the Auckland-based company’s long-term issuer credit rating has improved to bbb (good) from bb+ (fair), while the outlook of these ratings has been revised to stable from positive.
The ratings reflect Provident’s balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
The rating upgrades reflect material and sustained improvement in the company’s risk-adjusted capitalisation over recent periods.
Its risk-adjusted capitalisation was at the very strong level as of the end of the 2024 financial year.
As for the future, AM Best expects Provident’s risk-adjusted capitalisation to remain at least at the strong level over the medium term, supported by its internal capital generation, which takes into account planned partial share redemption and business growth targets.
Other positive balance-sheet strength factors include conservative investment strategy and a robust regulatory solvency position for the company, which is run by chief executive officer Steve Owens, pictured above.
“An offsetting balance-sheet strength factor includes exposure to long-duration policies that increases reserving risk,” reports AM Best. However, Provident takes a “prudent reserving approach and has a history of reserve adequacy”.
AM Best views the business’ operating performance as adequate, and it continues to be supported by its positive underwriting performance and robust investment returns.
It recorded a return-on-equity ratio of 15.2 per cent and a combined ratio of 96.9 per cent in 2023/24, as calculated by AM Best.
Provident has made “significant” investments in its information technology and pricing capabilities in recent periods to support its next phase of accelerated growth, which resulted in an elevated expense ratio in year-end 2024. Looking ahead, the expense ratio is expected to normalise.
AM Best assesses its business profile as limited. This reflects its relatively modest scale of operations and limited geographical diversification, as with all business emanating from New Zealand.
Provident is described a “niche insurer”, which focuses on mechanical breakdown insurance (MBI) and private motor-vehicle insurance largely distributed through dealerships and partners across its domestic market. It’s exposed to a moderate level of pricing risk arising from its multi-year policies, “largely” its MBI.
AM Best assesses Provident’s ERM as “appropriate” given the size and complexity of its operations, and views the successful execution of its growth plan to be an ongoing risk. To date, this risk has been mitigated through investments in internal capabilities and technology.
As for the future, AM Best expects the company’s risk-management capability to continue to develop and strengthen, supporting its increasing operational scale.
