AM Best has affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb+” (Fair) of Veterinary Professional Insurance Society Incorporated (VPIS) (New Zealand). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect VPIS’ balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.

VPIS’ balance sheet strength assessment is underpinned by its risk-adjusted capitalisation being at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). Despite this, AM Best considers VPIS to have a low regulatory solvency margin compared with its peers. This follows a significant increase in VPIS’ regulatory solvency requirement in fiscal year 2023, as a result of losing its regulatory small insurer status. Other offsetting balance sheet strength considerations include limited financial flexibility, and a small absolute capital base (NZD 3.5 million as of 30 September 2023), which increases the sensitivity of VPIS’ capital adequacy to stress scenarios. Whilst VPIS’ reinsurance programme protects the organisation against large single losses and aggregate exposure, AM Best views the organisation as having a high reliance on reinsurance.

AM Best assesses VPIS’ operating performance as adequate, with a five-year average return-on-equity ratio of 4.0% (fiscal years 2019 – 2023). The organisation typically records an elevated combined ratio, which is reflective of its pricing strategy as a not-for-profit members’ society. VPIS’ expense ratio is heightened when compared with the industry average as a result of its size and investment in technology in recent years. Investment income remains a key driver of the organisation’s operating performance, with a five-year average net investment yield (including gains/losses) of 4.0% (fiscal years 2019 – 2023).

VPIS is a not-for-profit organisation that provides predominantly professional indemnity insurance to veterinarians in New Zealand. The business profile assessment of limited reflects VPIS’ small-scale operations, niche product focus and high geographic concentration. Nonetheless, VPIS has a dominant market position in its targeted segment, supported by its highly specialised knowledge and experience in New Zealand’s veterinary industry.

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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