The latest on Fidelity's ratings

Fidelity Life has kept its ratings post the acquisition of Westpac Life, but the bank business has had its rating lowered.

Saturday, March 5th 2022, 5:57PM

Fidelity Life has kept its A- (Excellent) financial strength Fromm AM Best following its $400 million acquisition of Westpac Life (now Fidelity Insurance).

However, the former bank business has had its rating lowered by another ratings agency, Standard and Poor (S&P).

S&P lowered its ratings as Westpac had a higher rating than Fidelity Life and without the bank's support it was appropriate to bring Fidelity Insurance onto the same rating as Fidelity Life.

"Westpac Life (Fidelity Insurance) will no longer receive an additional notch for group support from a higher rated parent," S&P said.

AM Best says its ratings reflect each entity’s respective ‘very strong’ balance sheets, adequate operating performances, neutral business profiles and appropriate enterprise risk management.

Fidelity Life's AM Best rating has remained unchanged for 26 years.

Fidelity Group chief financial officer Simon Pennington says: “These ratings are important information for our customers – including our customers from Westpac Life - because they provide an expert view of our ability to pay their claims.”

S&P says its stable outlook "reflects our expectation that ownership under Fidelity Life will support the insurer's current competitive position and help it to maintain robust capital adequacy."

"The 'A' ratings reflect our view of Westpac Life's ongoing solid competitive position and capital adequacy under new ownership. We expect Westpac Life to maintain its strong competitive position with an ongoing 15-year distribution arrangement with Westpac New Zealand and a profitable product set. We also expect its current very strong capital metrics and reinsurance support to be maintained."

"We view Fidelity Life's brand as supportive of Westpac Life's competitive position and business retention, particularly as further integration occurs over the next two years.

The ratings agency says subsequently the two insurers will be amalgamated, likely through transfer into the Fidelity Life vehicle.

Westpac Life and Fidelity Life's regulatory capital ratios were 1.83x (as of September 30) and 1.23x (as of June 30), respectively. While Fidelity Life has a lower ratio, we anticipate that under Fidelity Life's ownership, Westpac Life will maintain solid earnings and capital buffers. "We expect Westpac Life to continues its operations as usual until Fidelity Life progresses integration of the two life insurers."

In 2021, Westpac Life ceded 11% of its gross written premium to reinsurers while Fidelity Life ceded 41%, both to a panel of high-quality global reinsurers. "We expect Westpac Life to maintain a similar level of risk appetite to Fidelity Life. As of June 30, 2021, Fidelity Life had around 87% of its investments in low-risk fixed income and cash equivalent assets."

S&P says it would only lower Fidelity Life's ratings if the group's operating performance materially weakened, or its competitive position deteriorated. "This could be due to a significant loss of market share or weakened brand that impacts earnings capability; or its capital adequacy deteriorates significantly."

From April Fidelity Insurance will only be rated by AM Best.

"We see an upgrade as unlikely," it said.

Tags: Fidelity Life