Current NZ Insurance Company Financial Strength Ratings - The Definitive Guide for Every New Zealander

Our guide offers a comprehensive insight into New Zealand insurers' financial strength ratings, explaining their importance, the rating frameworks used, key facts, rating scales, and answers to frequently asked questions.

Updated 17 September 2024

Summary:

The Reserve Bank of New Zealand (RBNZ) defines a financial strength rating as an independent assessment of an insurance company's ability and willingness to meet its policyholder obligations, measuring its financial stability and reliability. In plain English, this means it assesses whether it can pay out claims to policyholders.
Financial strength is important; the 2011 collapse of AMI after the Christchurch earthquake highlights that insurers don't have unlimited resources to settle claims and can get into financial trouble, as outlined in this interest.co.nz article from 2016.
Independent rating agencies such as Standard & Poor's, Fitch Ratings, and A.M. Best assign these ratings. They use an alphabetical scale, with higher ratings (e.g., 'AA') indicating a stronger ability to pay claims and lower ratings (e.g., 'B') suggesting a higher risk of financial difficulty.
While these ratings provide valuable insights, they are not the sole factor when choosing an insurer. Rating agencies consider various financial metrics, industry factors, and the quality of management when assessing an insurer's financial health.

To explain financial strength ratings and how they apply to insurers, are guide covers:

Are you looking for bank credit ratings? Our dedicated guide explains all.

A brief background on Financial Strength Ratings:

The 2008 Global Financial Crisis profoundly impacted New Zealand's financial sector, prompting significant regulatory changes. Before the crisis, financial strength ratings were not mandatory for all institutions, including insurers.
However, in the wake of the crisis, the Reserve Bank of New Zealand (RBNZ) introduced new requirements for registered banks and insurers to obtain ratings from approved agencies.
These regulatory changes enhanced transparency, improved risk management, and boosted confidence among policyholders and investors.
Since then, financial strength ratings have become an integral part of the insurance industry, providing a vital measure of an insurer's ability to meet its obligations.
The RBNZ and other regulators continuously monitor and refine the rating process to address evolving risks and challenges in the financial landscape. In the insurance context, these ratings serve as an important tool for consumers to assess the stability and reliability of their chosen insurer.
As outlined by the RBNZ, Section 60 of the Insurance (Prudential Supervision) Act (IPSA), introduced in 2010, requires some licensed insurers to have a current financial strength rating from an approved rating agency. The RBNZ have approved three rating agencies: A M Best, Standard & Poor's and Fitch Ratings.

MoneyHub Founder Christopher Walsh shares his comments on insurance risk and financial strength ratings:

"When choosing an insurance provider, knowing the company's financial strength rating is important. While most New Zealand insurers are financially stable, there are still a few key considerations I suggest you keep in mind:

Understand the significance: A high financial strength rating indicates that an insurer is more likely to be able to pay out claims, even in challenging circumstances such as a widespread flood, earthquake or other natural disaster. This is crucial for peace of mind, especially when dealing with significant home or life insurance policies.
Look for stability: It's not just about the current rating but the insurer's history. Insurers with a long track record of maintaining strong ratings are typically more reliable. An insurer with a high rating is less likely to experience financial trouble.
Beyond ratings: While financial strength is essential, it's important to consider the insurer's reputation for customer service and claims handling. While claims payout data must be shared, some insurers have a reputation for slower claims processing than others. This can be a significant downside, regardless of their financial rating.

Know This: Ultimately, while the risk of an insurer going under is relatively low, choosing an insurer with a solid financial foundation, excellent policy benefits and a reputation for fairness and reliability is the best way to approach it, rather than deciding by price or financial strength rating alone".

Christopher Walsh
MoneyHub Founder

New Zealand's Insurance Financial Strength Rating Framework Explained

The Reserve Bank of New Zealand (RBNZ) regulates insurance companies, requiring them to obtain and maintain a financial strength rating under the Insurance (Prudential Supervision) Act 2010. These ratings, provided by agencies such as Standard & Poor's, A.M. Best, and Fitch Ratings, give consumers a snapshot of an insurer's ability to meet its obligations, including paying out claims.

Financial strength ratings aren't guarantees of future performance. Even insurers with strong ratings carry some level of risk. For example, an 'AA' rated insurer indicates a very strong capacity to pay claims, but no rating is foolproof. These ratings provide a medium-term view of an insurer's financial health, focusing on their ability to weather economic challenges rather than reacting to short-term events.

For more details on how these ratings work and what they mean for consumers, the RBNZ offers in-depth resources to help you understand New Zealand insurers' financial stability.

Insurer Financial Strength Ratings Must-Know Facts

To better understand financial strength ratings for insurers, we've outlined key facts that explain their importance and what they signify.

1. Financial Strength Ratings Are Mandatory for Insurers in New Zealand

The Reserve Bank of New Zealand (RBNZ) requires licensed insurers to maintain a current financial strength rating under the Insurance (Prudential Supervision) Act 2010. This ensures consumers have access to a standardised measure of an insurer's ability to meet policyholder claims, offering transparency and aiding in making informed choices.

2. Issued by Independent, Recognised Agencies

The RBNZ approves several independent agencies to provide these ratings, including Standard & Poor's, A.M. Best, and Fitch Ratings. These agencies evaluate insurers based on capital adequacy, asset quality, and overall financial stability, ensuring an unbiased assessment of an insurer's financial health.

3. Higher Ratings Indicate Greater Financial Security

Insurers with higher financial strength ratings (e.g., 'AA' or 'A') are deemed more capable of paying out claims even during economic downturns or significant loss events. Lower ratings (e.g., 'B' or 'C') suggest higher risk, implying the insurer may face challenges in meeting its obligations.

4. Ratings Focus on an Insurer's Ability to Pay Claims

Unlike credit ratings for banks, which focus on the likelihood of repaying debts, financial strength ratings for insurers specifically assess their ability to pay out claims to policyholders. This focus on claims-paying ability is crucial for consumers who rely on their insurer's financial stability during unexpected events.

5. Ratings Are Not Guarantees of Future Performance

While financial strength ratings offer a snapshot of an insurer's ability to pay claims, they do not guarantee future performance. Even highly rated insurers can encounter unforeseen challenges. Therefore, it's essential to consider these ratings alongside other factors when selecting an insurer.
However, financial strength ratings are periodically reviewed to reflect changes in an insurer's financial condition, market conditions, or regulatory environment. Staying informed about an insurer's rating changes can provide early indications of potential financial issues.
These ratings offer a medium- to long-term view of an insurer's financial stability rather than short-term market movements. They evaluate an insurer's ability to withstand economic cycles and meet its long-term obligations, giving consumers a sense of security in the insurer's ongoing financial health.

Standardised Rating Scale - S&P vs A.M. Best vs Fitch

Claims-Paying Ability	Description	S&P Scale	A.M. Best	Fitch Scale
Extremely Strong	Indicates an insurer has an extremely strong capacity to meet its financial commitments, with a very high likelihood of being able to pay out claims even under severe economic or operational stress.	AAA	A++, A+	AAA
Very Strong	Shows a very strong capacity to meet obligations, with a slightly higher risk than 'AAA' but still very reliable and stable.	AA	A	AA
Strong	Demonstrates a strong capacity to fulfill policyholder obligations but is more susceptible to adverse economic conditions than the higher ratings.	A	A-	A
Adequate	Indicates an adequate capacity to meet financial commitments but with a greater sensitivity to changing economic circumstances. Still considered investment grade.	BBB	B++, B+	BBB
Less Vulnerable	Denotes some level of vulnerability to non-payment, particularly in unfavorable economic conditions, but currently able to meet obligations.	BB	B	BB
More Vulnerable	Shows more vulnerability, with financial commitments potentially being at risk in the face of adverse conditions.	B	B-	B
Currently Vulnerable	Indicates that the insurer is currently vulnerable to non-payment and is highly dependent on favourable business, financial, and economic conditions to meet obligations.	CCC	C++, C+	CCC
Currently Highly Vulnerable	Reflects a very high vulnerability to default, with a likelihood of not being able to meet financial commitments.	CC	C, C-	CC
Default (unable to pay claims)	Indicates that the insurer has defaulted on its obligations or is in imminent risk of doing so.	D	D	D

New Zealand Insurer Financial Strength Ratings - September 2024

General Insurers
These companies primarily offer non-life insurance products like home, car, and travel insurance. Most of these have strong financial strength ratings, indicating robust claims-paying abilities:

Life Insurers:
These companies focus on life insurance products, including life cover, income protection, and health insurance. Notable names include AIA New Zealand and Fidelity Life, with ratings generally indicating strong or superior financial strength:

Health and Other Specialty Insurers:
This category includes insurers like Southern Cross Health Society, known for health insurance, and other specialised insurers like Farmers Mutual Group (FMG). While not all are rated by major agencies, those with ratings generally show strong financial positions.

Southern Cross Health Society - S&P Rating: A+ (Strong)
Southern Response - Not rated by major agencies. Government-owned, focusing on managing claims from the Canterbury earthquakes.
MAS (Medical Assurance Society) - S&P Rating: A (Strong)
Farmers Mutual Group (FMG) - A.M. Best Rating: A (Excellent)
BNZ Insurance (Part of BNZ Life Insurance) - Not directly rated, parent company National Australia Bank - S&P Rating: AA- (Very Strong)

Important: What is the relationship between financial strength ratings and insurance premiums?

Financial strength ratings primarily evaluate an insurer's ability to pay claims and maintain financial stability, but they don't directly determine the premiums charged to policyholders. Premiums are more directly influenced by factors such as the level of risk being insured, the insurer's underwriting criteria, market competition, claims history, and regulatory environment.
However, financial strength ratings can indirectly influence consumer choice. The typical homeowner, for example, will prefer insurers with higher ratings due to their perceived stability and reliability, which can affect an insurer's market position. However, insurers with stronger financial strength might have more flexibility in pricing, but this doesn't necessarily translate to lower premiums. Conversely, an insurer with a lower rating may need to maintain a competitive pricing strategy to attract policyholders, so lower ratings don't always mean higher premiums.
In summary, while financial strength ratings can affect an insurer's reputation and market dynamics, they do not directly dictate customer premiums. Premium pricing is influenced by complex factors, including the insurer's underwriting policies, the specific risks covered, and broader market conditions.

Frequently Asked Questions

Our guides focuses on the financial strength ratings of insurers; as this is the first edition of our guide, if you have a question you'd like answered, please contact our research team.

How often are financial strength ratings updated for insurers?

Financial strength ratings for insurers are periodically reviewed and updated to reflect changes in the insurer's financial health, claims-paying ability, and overall risk profile. The frequency of updates varies depending on the rating agency and any significant changes in the insurer's circumstances. Our research team ensures this guide is updated whenever these ratings change.

What are the potential consequences of a financial strength rating downgrade for an insurer?

A downgrade in an insurer's financial strength rating can have several negative consequences. It may lead to reduced consumer confidence, making it harder for the insurer to attract or retain new policyholders. The insurer may also face increased reinsurance costs and experience challenges in maintaining partnerships with brokers and other stakeholders. A downgrade might prompt the insurer to adopt more conservative business practices to avoid further rating deterioration.

What are the main financial strength rating agencies for insurers?

Standard & Poor's (S&P), A.M. Best, and Fitch Ratings are the primary agencies that issue financial strength ratings for insurance companies in New Zealand (and globally). These agencies assess insurers' ability to meet policyholder obligations and pay claims, indicating financial stability.

What is the role of the Reserve Bank of New Zealand (RBNZ) in insurance ratings?

The Reserve Bank of New Zealand (RBNZ) is the primary regulator of insurers in New Zealand. It requires licensed insurers to maintain a current financial strength rating from an approved rating agency. The RBNZ oversees the insurance sector to ensure its stability and the protection of policyholders but does not issue ratings.

Are rating agencies regulated in New Zealand when it comes to insurance?

While rating agencies are not directly regulated by New Zealand law, they are subject to oversight by their respective home country regulators (Australia and the USA). The RBNZ approves specific rating agencies for evaluating New Zealand insurers and monitors the impact of these ratings on the country's insurance market.

What is the difference between financial strength and credit ratings for insurers?

A financial strength rating assesses an insurer's ability to pay policyholder claims and maintain financial stability, focusing on the insurer's overall financial health. In contrast, a credit rating for other entities like banks or corporations measures their ability to repay debt. While both ratings assess financial risk, financial strength ratings are tailored to the insurance industry's obligations.

How can I check an insurer's financial strength rating?

You can find an insurer's financial strength rating on their website or the rating agency's site (Standard & Poor's, A.M. Best, Fitch Ratings). Additionally, the Reserve Bank of New Zealand provides resources on the financial strength ratings of licensed insurers in New Zealand. Finally, the table above lists the ratings of 25+ insurers, covering the wider market.

What role do financial strength ratings play in reinsurance?

Reinsurance is a key component of an insurer's risk management strategy, and financial strength ratings are crucial in this context. Strong ratings can give insurers better terms when purchasing reinsurance, further enhancing their ability to pay claims in the event of significant losses.

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