(The following statement was released by the rating agency)
SYDNEY, December 04 (Fitch) Fitch Ratings has assigned New
Union Insurance Ltd (CUIL) an Insurer Financial Strength (IFS)
rating of 'BB+'.
The Outlook is Stable.
KEY RATING DRIVERS
CUIL's rating reflects its sound business model and operating
conservative risk management settings, a strong technical
'risk-based' level of
capitalisation, prudent reinsurance arrangements, low-risk
good growth prospects, and an improved operating performance.
rating is its small size and market position, and limited
CUIL offers a simple short-tail range of motor and life
insurance products to
its ultimate credit union member owners. Growth prospects appear
good, with a
simple product range supporting the distribution model of sales
by credit union
staff primarily focused on lending, not insurance activities,
and access to a
large membership base.
CUIL's business model and operating platform are sound. The
company underwent a
restructure after being acquired by the New Zealand Association
of Credit Unions
(NZACU) in 2007. The motor book has been remediated, on-going
reduced, internal controls and processes tightened and a
profitable portfolio of
life business has been transferred from the NZACU.
A conservative investment approach is reflected in a 100%
allocation to on-call
cash or short term deposits. The company does have a large
exposure in the form of its on-call cash deposits with the
NZACU. However, the
NZACU's low risk approach to investments, which are used to
manage member credit
unions' liquidity, helps mitigate this counterparty risk.
CUIL's capital adequacy is very strong based on a technical
calculation, its current risk exposures being modest relative to
regulatory capital requirements. However, with total equity of
end-June 2013, capital is low on an absolute basis, and this
leaves CUIL more
exposed to larger operational risks, or changes in the external
environment. Operational risks do however appear to be well
managed, and CUIL's
high degree of integration with the NZACU is positive in
mitigating these risks.
Triggers for a downgrade: The unexpected withdrawal of support
ultimate shareholders would result in a downgrade.
CUIL could also be downgraded should it fail to maintain solid
above the regulatory requirement of NZD5m. A prudential
requirement failure to
comply with solvency requirements would have serious
implications and could
result in the withdrawal of the company's license.
Triggers for an upgrade: Fitch considers this unlikely over the
given the company's small size and limited market position. In
would need to significantly improve its standalone financial
maintaining strong capital ratios and its conservative risk
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Applicable criteria, "Insurance Rating Methodology" dated 11
January 2013, are
available at www.fitchratings.com.
Media Relations: Iselle Gonzalez, Sydney, Tel: +61 2 8256 0326,
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Applicable Criteria and Related Research:
Insurance Rating Methodology -- Amended
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