Southern Cross has had its credit rating cut by international ratings agency Standard & Poors.
Standard & Poor's lowered its insurer financial strength and counterparty credit rating on Southern Cross from AA-minus to A-plus. The outlook on that rating was revised to stable from negative.
"Southern Cross has experienced some collateral damage to its leading business franchise following the recent claims delay through systems problems," S&P director of financial services ratings Michael Vine says.
"While the backlog has now been eliminated and processing is back to normal, the organisation has lost slight market share, suffered some senior management uncertainty, and deferred its strategic intention to raise premium rates, further delaying its return to operating profitability."
Earlier in the week Southern Cross said members would face premium rises of about 16% in the middle of this year, after an independent review found underwriting losses meant a rise in premiums was "imperative".
A 16% increase would add about $35 a year to the premium paid by an adult on a KiwiCare scheme.
For a family of two adults and a child with a RegularCare policy, the annual increase would be about $120.
Vine says that although capitalisation and liquidity levels remained strong, the insurer's earnings had deteriorated and no longer supported a higher rating.
The outlook for that rating was stable, with S&P expecting the Southern Cross's operating performance to stabilise in 2003 as the premium increases took effect.
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