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Fitch Assigns New Zealand's Credit Union Insurance Limited 'BB+'/Stable
December 5, 2013 / 2:27 AM / 4 years ago

Fitch Assigns New Zealand's Credit Union Insurance Limited 'BB+'/Stable

(The following statement was released by the rating agency) SYDNEY, December 04 (Fitch) Fitch Ratings has assigned New Zealand-based Credit 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 platform, conservative risk management settings, a strong technical 'risk-based' level of capitalisation, prudent reinsurance arrangements, low-risk investment portfolio, good growth prospects, and an improved operating performance. Constraining the rating is its small size and market position, and limited financial flexibility. 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 operating costs 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 related party 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 risk-based calculation, its current risk exposures being modest relative to minimum regulatory capital requirements. However, with total equity of NZD5.5m at 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 operating 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. RATING SENSITIVITIES Triggers for a downgrade: The unexpected withdrawal of support from CUIL's ultimate shareholders would result in a downgrade. CUIL could also be downgraded should it fail to maintain solid solvency margins 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 rating horizon given the company's small size and limited market position. In addition, CUIL would need to significantly improve its standalone financial flexibility while maintaining strong capital ratios and its conservative risk appetite. Contacts: Analysts John Birch Director +61 2 8256 0345 Fitch Australia Pty Ltd, Level 15, 77 King Street, Sydney, NSW 2000 Tim Roche Senior Director +61 2 8256 0310 Committee Chairman Stephan Kalb Senior Director +49 69 768076 118 Applicable criteria, "Insurance Rating Methodology" dated 11 January 2013, are available at Media Relations: Iselle Gonzalez, Sydney, Tel: +61 2 8256 0326, Email: Additional information is available on Applicable Criteria and Related Research: Insurance Rating Methodology -- Amended here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S FREE WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Fitch Australia Pty Ltd holds an Australian financial services licence (AFS licence no. 337123) which authorises it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.

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