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Research Update: Teleco Insurance (NZ) 'BBB+' Ratings Affirmed Following Revised Capital Criteria; Outlook Stable

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Research Update: Teleco Insurance (NZ) 'BBB+' Ratings Affirmed Following Revised Capital Criteria; Outlook Stable

Overview

  • On Nov. 15, 2023, we published our revised criteria for analyzing insurers' risk-based capital (see "Insurer Risk-Based Capital Adequacy--Methodology And Assumptions").
  • Based on our revised criteria, we affirmed our 'BBB+' long-term ratings on New Zealand-based mobile handset insurer Teleco Insurance (NZ) Ltd. (TINZ).
  • Application of the revised risk-based capital criteria has no material impact on our robust assessment of the capital adequacy of TINZ. We continue to moderate our broader capital and earnings assessment due to TINZ's modest size, but have revised the limit to strong from satisfactory because the insurer's capital resources well exceed US$25 million.
  • TINZ ceased writing new insurance policies from Dec. 1, 2023, and existing policies will end in April 2024 as its parent Spark New Zealand Ltd. offers a new mobile insurance product. We expect Spark to remain supportive throughout the run-off period.
  • The stable outlook on TINZ aligns with the stable outlook on its parent Spark.

Rating Action

On March 28, 2024, S&P Global Ratings affirmed its 'BBB+' long-term financial strength and issuer credit ratings on TINZ. The outlook on the ratings is stable.

Impact Of Revised Capital Model Criteria

  • Implementing the revised criteria has no material impact on TINZ's capital adequacy. Capital remains redundant at the 99.99% confidence level.
  • We have revised the capital and earnings score to strong from satisfactory, given total assessed capital (TAC) remains clearly above our US$25 million smaller size benchmark.

Credit Highlights

Overview
Key strengths Key risks
Extraordinary support from its parent, Spark. Concentrated product line now in run-off.
Solid operating performance. Exposure to heightened regulatory oversight.
Modest operating scale and capital resources.

Outlook

The stable rating outlook on TINZ aligns with the outlook on parent Spark. We expect Spark to remain supportive throughout the run-off period as TINZ winds down its operations.

We would likely withdraw our ratings on TINZ at the current level once policyholder obligations have ceased.

Downside scenario

We could lower the rating on TINZ over the next year if:

  • We lower the issuer credit rating on Spark; or
  • We view TINZ as less likely to benefit from extraordinary group support.
Upside scenario

We would not expect to raise the ratings over the next year given the short time remaining in the run-off period.

Rationale

We believe that TINZ will continue to benefit from timely financial and operational support from parent Spark, if needed. TINZ receives two notches of ratings uplift to 'BBB+' over its stand-alone credit profile of 'bbb-' because of this implied group support.

Although Spark has disclosed it has stopped writing new handset insurance policies through TINZ from December 2023 and is winding down the operations, we maintain our assessment of likely group support. This is because TINZ is not being sold and the product and client base remain important to Spark as it offers clients a new handset insurance product from another provider.

TINZ will remain operational over a short run-off period after policies end in April 2024 to manage existing and newly reported claims. We believe TINZ has sufficient financial resources and liquidity to meet its policyholder obligations.

We view TINZ as a strategically important subsidiary of Spark due to its modest, although profitable, contribution to the group. We view its service offering as supplementary to the group's core telecommunication business. We recognize that TINZ is operationally integrated with Spark and shares its customer base. Even though the business is in run-off, we believe the support of Spark will remain in place until all policyholder obligations have been met.

Our revision to a fair business assessment reflects the insurer now being closed to new business and in run-off. The assessment also reflects the insurer's monoline operations and limited diversity, although it has recorded consistently strong profitability. TINZ's capital adequacy remains excellent under the new capital model. However, we apply a size cap due to the insurer's modest capital base (NZ$84 million) and apply risk concentration haircuts to result in our satisfactory financial risk assessment.

Ratings Score Snapshot

To From
Financial strength rating BBB+/Stable/-- BBB+/Stable/--
Anchor* bbb- bbb-
Business risk Fair Satisfactory
IICRA Intermediate Intermediate
Competitive position Fair Satisfactory
Financial risk Satisfactory Fair
Capital and earnings Strong Satisfactory
Risk exposure Moderately High Moderately High
Funding structure Neutral Neutral
Modifiers 0 0
Governance Neutral Neutral
Liquidity Exceptional Exceptional
Comparable ratings analysis 0 0
Support 2 2
Group support 2 2
Government support 0 0
*We select the lower anchor of 'bbb-' due to the insurer's run-off business profile and monoline business concentration. IICRA--Insurance Industry And Country Risk Assessment.

Related Criteria

Ratings List

Ratings Affirmed

Teleco Insurance (NZ) Ltd.

Issuer Credit Rating
Local Currency BBB+/Stable/--
Financial Strength Rating
Local Currency BBB+/Stable/--

S&P Global Ratings Australia Pty Ltd holds Australian financial services license number 337565 under the Corporations Act 2001. S&P Global Ratings' credit ratings and related research are not intended for and must not be distributed to any person in Australia other than a wholesale client (as defined in Chapter 7 of the Corporations Act).

Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.spglobal.com/ratings for further information. Complete ratings information is available to RatingsDirect subscribers at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.spglobal.com/ratings.

Primary Credit Analyst:Michael J Vine, Melbourne + 61 3 9631 2013;
Michael.Vine@spglobal.com
Secondary Contact:Craig A Bennett, Melbourne + 61 3 9631 2197;
craig.bennett@spglobal.com

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