The outlook assigned to both ratings is stable.
The ratings reflect UniMed's excellent risk-adjusted capitalisation, historically solid operating performance and strengthened business profile. The ratings also recognise management's initiatives in improving operational efficiency through an enhanced information technology platform.
UniMed's balance sheet strength demonstrates strong risk-based capitalisation with favorable liquidity of its investment risk profile. While capital and surplus grew by 6% year over year, coupled with moderate underwriting risk in fiscal year ended June 2010, the company's risk-based capital level, as measured by Best's Capital Adequacy Ratio, improved from the previous year. AM Best views favorably UniMed's risk-adjusted capitalisation, which will remain strong to support its projected business growth over the next two years.
UniMed has maintained profitable operating results, as indicated by its improved expense ratios in recent years. The expense ratio decreased to 11.1% in fiscal year 2010 from 13.4% in fiscal year 2008, and is expected to be lower in the foreseeable future. An improvement in the expense ratio as premium grows through the enhanced information technology platform could ease the pressure on the company's underwriting profitability. Also, the favorable investment income generating from UniMed's liquid investment portfolio has consistently contributed to the company's overall earnings.
Since January 2010, UniMed has progressively integrated Insurance Australia Group's health insurance portfolio, which is distributed by Bank of New Zealand. UniMed continues to strengthen its revenue stream and explore opportunities to expand its product reach to various groups going forward.
Offsetting rating factors include UniMed's increased loss ratio and the challenges posed by the local health insurance market.
UniMed's loss ratio increased to 93.5% for fiscal year 2010 from 85.4% for the previous year (versus 80% during fiscal years 2006-08) mainly due to escalated medical costs. Notwithstanding the increase in premium rates, the company's loss ratio is anticipated to remain at a level of 88% by fiscal year-end 2011.
The reduction in membership of group health insurance coverage within the local industry, driven by subdued employment levels and continued medical costs inflation, could lead to potential variability in earnings growth for the company. UniMed will continue to face challenges in maintaining favorable margins under a competitive and economically challenged environment.
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