AM Best Revises Issuer Credit Rating Outlook to Positive for DPL Insurance Limited

AM Best has revised the outlook to positive from stable for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term ICR of "bbb" (Good) of DPL Insurance Limited (DPL) (New Zealand). The outlook of the FSR is stable.

The Credit Ratings (ratings) reflect DPL's balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. The ratings also factor in a neutral impact from the company's ultimate ownership by Turners Automotive Group Limited (Turners), a motor vehicle retailer and financial services group in New Zealand.

The revision of the Long-Term ICR outlook to positive from stable reflects DPL's improved operating performance metrics in recent years, supported by solid underwriting results and robust investment income. The company reported a five-year average return-on-equity ratio of 13.5% (fiscal years 2019-2023). The underwriting results exhibited an improving trend over the past five years, with the combined ratio reducing to 77.4% in fiscal year 2023 from 96.0% in fiscal year 2019. This is driven primarily by DPL's initiatives to enhance pricing and risk selection for its core insurance products, as well as cost saving initiatives implemented by the company. In addition, the company benefited from lower claims frequency for the motor-related lines of business as a result of COVID-19 in recent years. DPL reported an average net investment yield (excluding gains and losses) of 3.2% over the past five years (fiscal years 2019-2023).

DPL's balance sheet strength assessment is underpinned by its risk-adjusted capitalisation, as measured by Best's Capital Adequacy Ratio (BCAR), which was at the strongest level as of fiscal year-end 2023. AM Best expects the company's risk-adjusted capitalisation to remain at the strongest level prospectively, supported by controlled underwriting growth and appropriate retention of earnings. AM Best views DPL's investment strategy to be balanced, with the majority of investment assets held in term deposits, albeit with a notable exposure to illiquid assets including investment properties. Partially offsetting balance sheet factors include a high dividend payout ratio in recent years and the significant volume of intangible assets arising from the company's acquisition of Autosure's insurance business in 2017.

AM Best views the company's business profile as limited given its niche and relatively modest scale of operations. DPL's ownership and affiliation with its parent, Turners, which is the largest retailer of used motor vehicles in New Zealand, provides good access to business and creates a valuable distribution network. The company is exposed to a moderate level of pricing risk arising from its multi-year policies, largely motor mechanical breakdown insurance. However, this risk has been managed appropriately to date with no material deviation of loss experience from the pricing assumptions.

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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