AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” (Excellent) of Union Medical Benefits Society Limited (UniMed) (New Zealand).

The Credit Ratings (ratings) reflect UniMed’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.

The revision of the outlooks to negative from stable reflects the ongoing pressure on UniMed’s operating performance fundamentals, which in turn, put pressure on the company’s balance sheet strength fundamentals. The recent underwriting losses have resulted in capital erosion and a decline in risk-adjusted capitalisation. UniMed’s underwriting performance has been impacted adversely by the high claims inflation in New Zealand’s health insurance industry, with the company reporting an elevated combined ratio (net/net, IFRS 17) of 116.4% in fiscal-year 2024.

Prospectively, AM Best expects UniMed’s near-term underwriting performance to remain under pressure. Loss ratios are expected to stabilise over the medium term, as the company continues to implement portfolio remediation actions, which include material price increases. Additionally, as a not-for-profit insurer, investment income is expected to remain a key contributor to UniMed’s overall earnings.

UniMed’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), albeit exhibiting a decreasing trend. This reflects the company’s low underwriting leverage and moderate investment risk. The company’s regulatory solvency position remains higher than both the regulatory minimum and its internal minimum threshold. As a member-owned organisation, AM Best considers UniMed’s financial flexibility to be limited. However, this is mitigated partially by the company’s prudent approach to capital management.

AM Best assesses UniMed’s business profile as neutral. Following the acquisition of Accuro Health Insurance Society Limited’s insurance portfolio in fiscal-year 2024, UniMed is currently New Zealand’s third-largest health insurer. As a monoline, not-for-profit insurer, UniMed has limited product diversification. However, UniMed benefits from its low product risk, with limited exposure to large loss and catastrophe events. Prospectively, AM Best expects the company’s ongoing investments in technology and marketing to support its next phase of accelerated growth and customer retention.

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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