AM Best Affirms Credit Ratings of Police Health Plan Limited

AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of Police Health Plan Limited (PHP) (New Zealand). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect PHP’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management. In addition, the ratings factor in a neutral impact from the company’s ultimate ownership by the New Zealand Police Association (NZPA).

PHP’s balance sheet strength assessment is underpinned by its risk-adjusted capitalisation that remains at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). This reflects the company’s moderate underwriting leverage and conservative investment approach. As a public-benefit insurer dedicated only to its captive membership base, AM Best views the company’s financial flexibility as limited, although this is mitigated partially by its prudent capital management and capability of internal capital generation. An offsetting balance sheet factor is the company’s modest capital base, which results in higher sensitivity of capital adequacy to stress scenarios or fluctuations in performance.

AM Best assesses PHP’s operating performance as adequate, with a five-year average return-on-equity ratio of 5.4% (fiscal years 2018-2022), albeit with a moderate level of volatility over this period. PHP benefits from an efficient cost structure that allows it to offer competitive health coverage and premiums to its members. The company delivered robust underwriting profits over the past four fiscal years (2019-2022). However, as a not-for-profit insurer, given that the company’s regulatory solvency ratio is higher than its internal target and it does not pay dividends, PHP plans to return its excess capital to policyholders by maintaining an elevated level of loss ratio over the medium term. Prospectively, AM Best expects PHP to maintain long-term performance close to break-even despite weaker underwriting results. However, if its claims experience significantly deviates unfavorably from the plan, AM Best expects the company to adjust premium rates rapidly as demonstrated in the past.

PHP provides health insurance exclusively to current and former members of the New Zealand police and their families. Despite having a relatively small premium base in New Zealand’s health insurance market, the company’s business profile assessment factors in its high penetration rate within the police force and its close integration with the NZPA, which gives rise to synergy and efficiency benefits. PHP has preferential access to NZPA’s member base, benefits from low distribution costs and shares overhead with the broader group.

Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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