A.M. Best has affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb” of Quest Insurance Group Limited (Quest) (New Zealand). The outlook of these Credit Ratings (ratings) remains stable.

The ratings reflect Quest’s favorable risk-adjusted capitalization, low product risk profile and positive operating results. A.M. Best expects Quest’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), to remain adequate in supporting its near-term business growth plans. Overall operating results have been consistently positive, stemming from contributions from Quest’s large investment portfolio, relative to its premium revenue.

Offsetting these positive rating factors are the company’s limited market profile and weak underwriting performance. Quest provides loan protection and motor vehicle insurance to the loan customers of its parent company, Geneva Finance Limited (GFL). These policies have short terms of between one and three years. Therefore, the company’s premium revenue is largely dependent on new business, which itself is driven by the volume of new lending by GFL. At present, GFL is a small lender in providing vehicle finance in the New Zealand market.

The insurance products that Quest underwrites have low claims costs but a high commission expense structure, as represented by a five-year average combined ratio in excess of 100%. Consequently, underwriting profit margins are thin, and the company generates most of its profits from investment earnings.

Positive rating actions may occur if the company can demonstrate improved underwriting profitability and achieve its growth plans. Negative rating actions could occur if there is a significant deterioration in the company’s risk-adjusted capitalization or underwriting performance. In addition, the ratings may experience downward pressure should there be a material decline in the overall financial strength of GFL.

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 A.M. 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 A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings.

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