Insurer receives ratings boost
The parent company of Autosure has had its credit rating upgraded at a time when ratings are under pressure because of the uncertain economic outlook created by the Covid-19 pandemic.
DPL Insurance, which is the insurance arm of Turners Automotive and includes Autosure among its brands, has had its financial strength rating upgraded by global agency AM Best from B+ to B++.
Its long-term issuer credit rating has shifted up to “bbb” from “bbb-”, and the outlook of DPL’s ratings have been revised from positive to stable.
James Searle, general manager of DPL Insurance, says the company is proud of the upgrades and claims they reflect its long-term strength.
“With things up in the air because of Covid-19, it’s a really good result because generally the rating agencies are taking a closer look at insurance companies to make sure they can weather the next 12 months,” explains Searle, pictured.
AM Best says the new ratings reflect DPL’s balance sheet strength, which the agency categorises as strong, as well as the insurer’s adequate operating performance, and appropriate risk management.
However, the agency views the company’s business profile as limited because its main business is subject to competitive market conditions and used-car sales may be disrupted by the coronavirus crisis.
“Despite this, DPL’s ownership and affiliation with its parent, Turners, which is the largest retailer of used motor vehicles in New Zealand, provides good access to business and creates a valuable distribution network,” says AM Best.
“The rating upgrades reflect an improvement in AM Best’s assessment of the company’s balance sheet strength.
“DPL’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), has exhibited an improving trend over the past three years, and remained at the strongest level in fiscal years 2019 and 2020.
“Prospectively, AM Best expects that controlled growth, robust underwriting performance and appropriate retention of overall earnings will help DPL maintain its risk-adjusted capitalisation at the strongest level over the medium term.”
The agency adds that DPL has a track record of adequate operating performance, with a five-year average return-on-equity ratio of 7.9 per cent in the fiscal years 2016 to 2020.
The company’s combined ratio improved to 93.9 per cent in the year to June 2020 from 96 per cent in the 2019 financial year. This was primarily driven by DPL’s initiatives to enhance pricing and risk selection for its core insurance products.
AM Best says investment returns remain a key driver of DPL’s operating performance, with the company’s net investment yield, excluding gains or losses, above three per cent over the past three fiscal years.
Searle adds the current challenge for DPL Insurance and Autosure is the “unknown”, following disruption to the economy caused by the coronavirus pandemic.
“Going forward, it is harder to know what sales are going to be or what income will be,” he says. “It’s just a case of constantly working on the business and maintaining good disciplines around managing risks. The main thing is to still be around paying claims and supporting customers long term.
“We have a good balance sheet and believe we have got the money there to deal with whatever is round the corner.”
