//BestWire// – AM Best has affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb+” (Fair) of Veterinary Professional Insurance Society Incorporated (VPIS) (New Zealand). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect VPIS’ balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.
VPIS’ balance sheet strength assessment is underpinned by its risk-adjusted capitalisation being at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). Despite this, AM Best considers VPIS to have a low regulatory solvency margin compared with its peers. Other offsetting balance sheet strength considerations include limited financial flexibility, and a small absolute capital base (NZD 3.7 million as of 30 September 2024), which increases the sensitivity of VPIS’ capital adequacy to stress scenarios. Whilst VPIS’ reinsurance programme protects the organisation against large single losses and aggregate exposure, AM Best views the organisation as having a high reliance on reinsurance.
AM Best assesses VPIS’ operating performance as adequate. As a not-for-profit members society, operating earnings has been driven historically by investment income rather than underwriting profits. In fiscal year 2024, VPIS recorded a return-on-equity ratio of 5.5%, with a combined ratio of 107.7%. The elevated combined ratio is driven by increased claim frequency and higher operating expenses. Particularly, VPIS’ expense ratio is heightened when compared with the industry average as a result of its size and investment in technology in recent years. Investment income remains a key driver of the organisation’s fiscal year 2024 operating earnings, with a net investment yield (including gains/losses) of 8.6%.
VPIS is a not-for-profit organisation that provides predominantly professional indemnity insurance to veterinarians in New Zealand. The business profile assessment of limited reflects VPIS’ small-scale operations, niche product focus and high geographic concentration. Nonetheless, VPIS has a dominant market position in its targeted segment, supported by its highly specialised knowledge and experience in New Zealand’s veterinary industry.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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