Overview
- On Nov. 15, 2023, we published our revised criteria for analyzing insurers' risk-based capital (see "Insurer Risk-Based Capital Adequacy--Methodology And Assumptions").
- We raised our long-term financial strength and issuer credit ratings on New Zealand-based health insurer nib nz Ltd. to 'A' from 'A-', following the revised criteria. At the same time, we raised the long-term financial strength rating on life insurer nib nz insurance Ltd. to 'A' from 'A-', as a core entity of nib group's New Zealand operations.
- Application of the revised risk-based capital criteria materially strengthened the capital adequacy and our financial strength assessment of nib holdings ltd. (nib group; unrated), improving the group credit profile to 'a'.
- We view nib's New Zealand operations as core to nib group, recognizing the capital investment, operational integration, and strategic alignment with the group.
- The stable outlook on nib's New Zealand operations reflects our view that the core operations will generate sound underwriting earnings and retain financial strength over the next two years.
Rating Action
On Feb. 9, 2024, S&P Global Ratings raised its long-term financial strength and issuer credit ratings on the New Zealand-based nib nz Ltd. and the financial strength rating on nib nz insurance Ltd. to 'A' from 'A-'. Both entities are part of a New Zealand subgroup that is assessed as a core operation of the Australia-based nib group. The outlook on the ratings is stable.
Impact Of Revised Capital Model Criteria
- The improvement in capital adequacy partly reflects an increase in total adjusted capital (TAC) owing to not deducting non-life deferred acquisition costs. It also reflects the impact of the updated premium risk and reserve charges.
- We've also captured the benefits of risk diversification more explicitly in our analysis, which supports capital adequacy.
- The recalibration of our capital charges to higher confidence levels somewhat offsets these improvements.
Credit Highlights
| Overview | |
|---|---|
| Key strengths | Key risks |
| Strong market position as second-largest provider of health insurance in New Zealand. | Competitive pressure from a dominant not-for-profit competitor in the local market. |
| Benefits from expertise and broader support provided by wider nib group. | Limited product diversity, with material reliance on health insurance. |
| Very strong capital adequacy, albeit relatively small in absolute size. | |
Outlook
The stable outlook reflects our expectation nib's New Zealand operations will remain core to nib group, and those operating entities will maintain a sound stand-alone operating performance and financial strength over the next two years.
Downside scenario
We could lower the ratings on nib's New Zealand operating entities if we lowered the nib group credit profile. A lower credit rating could also reflect a weaker expectation of extraordinary support.
Upside scenario
We may raise the nib group credit profile if both the diversity of operations and competitive position materially strengthen over the next two years.
Rationale
Nib nz Ltd. will maintain its solid market share as the second-largest health insurer in New Zealand, in our opinion. Market share improved to about 17.8% as of June 30, 2023, (up from 16.5% a year earlier) benefiting from a strong presence, and sales, in the advisor and group distribution channels. Over the year, its membership grew by 9.3%, slightly ahead of market growth of about 8.40%.
We believe brand awareness will strengthen following the acquisition and rebranding of the "Living Benefits" life insurance product offered through nib nz insurance Ltd. The acquisition of OrbitProtect Ltd., a specialized travel insurer targeting international visitors to New Zealand, will complement nib nz insurance Ltd.'s product diversity.
We expect nib nz Ltd.'s earnings resilience to remain a credit strength, supplemented by solid capital adequacy. In the year ended June 30, 2023, nib nz Ltd. reported a solid underwriting result of NZ$33.2 million, up from NZ$24.3 million. The gross margin increased to 9.6% from 7.9% benefiting from strong top-line premium growth of 12.7% and sound underwriting cost containment.
Capital adequacy will remain a key strength to the credit rating, in our view. Nib nz Ltd. has the flexibility to reprice premium rates and preserve margins at short notice, mitigating potential adverse claims pressures. Capital adequacy is excellent, based on S&P Global Ratings' capital model, yet this is moderated due to the insurer's relatively small size.
In our view, nib nz Ltd. will receive extraordinary support under any foreseeable circumstances from its ultimate parent, nib group. Nib nz Ltd.'s core group status recognizes the high level of investment, integration and strategic alignment with nib group.
The group's commitment to growth in the New Zealand market supports our view of parental support, with the group acquiring nib nz insurance Ltd. and OrbitProtect Ltd. in 2023. Nib nz Ltd. remains the largest New Zealand subsidiary and a material contributor to group earnings.
Our ratings on nib nz Ltd. receive a one-notch uplift from the 'a-' anchor. The uplift reflects the subsidiary's core group status.
We select the lower 'a' anchor from 'a+/a' for nib group. This reflects our view of nib group's financial risk profile being at the lower end of very strong. The insurer's capital size is mid-tier with operations relatively concentrated in health insurance.
Ratings Score Snapshot
nib nz Ltd.
| To | From | |||||
|---|---|---|---|---|---|---|
| Financial strength rating | A | A- | ||||
| Anchor | a- | a- | ||||
| Business risk | Satisfactory | Satisfactory | ||||
| IICRA | Intermediate | Intermediate | ||||
| Competitive position | Satisfactory | Satisfactory | ||||
| Financial risk | Strong | Strong | ||||
| Capital and earnings | Strong | Strong | ||||
| Risk exposure | Moderately Low | Moderately Low | ||||
| Funding structure | Neutral | Neutral | ||||
| Modifiers | ||||||
| Governance | 0 | |||||
| Liquidity | Exceptional | Adequate | ||||
| Comparable ratings analysis | 0 | 0 | ||||
| Support | 1 | 0 | ||||
| Group support | 1 | 0 | ||||
| Government support | 0 | 0 | ||||
| IICRA--Insurance Industry And Country Risk Assessment. | ||||||
Environmental, social, and governance (ESG) credit factors for this change in credit rating/outlook and/or CreditWatch status:
- Health and safety
- Governance structure
Related Criteria
- Criteria | Insurance | General: Insurer Risk-Based Capital Adequacy--Methodology And Assumptions, Nov. 15, 2023
- General Criteria: Environmental, Social, And Governance Principles In Credit Ratings, Oct. 10, 2021
- General Criteria: Group Rating Methodology, July 1, 2019
- Criteria | Insurance | General: Insurers Rating Methodology, July 1, 2019
- General Criteria: Principles Of Credit Ratings, Feb. 16, 2011
Ratings List
| Upgraded | ||
|---|---|---|
| To | From | |
|
nib nz Ltd. |
||
| Issuer Credit Rating | ||
| Local Currency | A/Stable/-- | A-/Stable/-- |
|
nib nz Ltd. |
||
|
nib nz insurance Ltd. |
||
| Financial Strength Rating | ||
| Local Currency | A/Stable/-- | A-/Stable/-- |
S&P Global Ratings Australia Pty Ltd holds Australian financial services license number 337565 under the Corporations Act 2001. S&P Global Ratings' credit ratings and related research are not intended for and must not be distributed to any person in Australia other than a wholesale client (as defined in Chapter 7 of the Corporations Act).
Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.spglobal.com/ratings for further information. Complete ratings information is available to RatingsDirect subscribers at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.spglobal.com/ratings.
| Primary Credit Analyst: | Craig A Bennett, Melbourne + 61 3 9631 2197; craig.bennett@spglobal.com |
| Secondary Contact: | Michael J Vine, Melbourne + 61 3 9631 2013; Michael.Vine@spglobal.com |
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