AM Best has affirmed the Financial Strength Rating of ‘A-‘ (Excellent) and the Long-Term Issuer Credit Rating of ‘a-‘ (Excellent) for The Hollard Insurance Company in Australia with a stable outlook.
However, at the request of Hollard, AM Best has withdrawn these ratings as the company has opted out of AM Best’s interactive rating process.
Company profile
Hollard is one of the top 10 non-life insurers in Australia, with a market share of approximately 4% in 2023.
The company has seen significant premium growth over the past decade, supported by a diverse network of distribution partners and affiliated underwriting agencies in Australia and New Zealand.
This growth trajectory is attributed to its broad and effective distribution strategy, which has enabled the company to expand its reach and customer base significantly.
Despite this success, expectations for future premium growth are set to be more modest, as Hollard shifts its strategic emphasis towards enhancing operational efficiency and advancing technological capabilities.
Rating drivers
Hollard’s operating performance over the fiscal years 2019-2023 is regarded as adequate by AM Best, highlighted by an average return-on-equity ratio of 4.5%.
The company’s underwriting profits have been modest during this period, impacted by several weather events, COVID-19-related provisions, and increased claims inflation.
Looking forward, AM Best anticipates an improvement in underwriting profits, mainly due to a reduction in the expense ratio following the acquisition of Commonwealth Insurance Limited in September 2022 and the implementation of various cost-saving measures.
Hollard has a moderate dependence on third-party reinsurance to support catastrophe and large loss exposure management, albeit reinsurance usage has been declining in recent years, AM Best said.
Hollard’s balance sheet strength is deemed adequate by AM Best as at the end of the fiscal year on 30 June 2023.
The Australian insurer’s balance sheet strength assessment is supported by its unconsolidated risk-adjusted capitalisation, which AM Best deemed as ‘adaquete’ for the fiscal year ending 30 June 2023, when measured by Best’s Capital Adequacy Ratio (BCAR). The rating agency anticipates an improvement in the company’s risk-adjusted capitalisation to a “very strong level” in the medium term, thanks to better earnings retention.
AM Best said Hollard has a “strong financial flexibility, with a track record of shareholder support, including capital injections and hybrid debt issuances.”
In December 2023, the business issued AUD 135 million in wholesale subordinated notes, which bolstered its regulatory capital position.
