3 April 2014 News

New Zealand’s electricity captive downgraded

AM Best has downgraded the financial strength rating of the captive used by Transpower New Zealand, the state-owned, sole operator of New Zealand’s electricity grid.

It moved the rating of Risk Reinsurance, Transpower’s Cayman Islands-based captive, to A from A+. The outlook on the rating is stable.

The rating agency said the change was because of the captive’s high event retentions relative to its capital target, which potentially could result in significant fluctuation of its risk-adjusted capitalisation. Following a large dividend payment to Transpower in August 2013, the captive’s capital target has been set at NZ$50 million ($42.6 million).

AM Best said positive rating factors include its excellent balance sheet strength and capital generation ability. The quality of Transpower’s risk management has benefitted the captive’s underwriting results since its inception and sustained its excellent capital generation ability so far.

The rating agency added that positive rating actions are unlikely at present. Negative rating actions could occur if Risk Reinsurance’s capital target is further reduced relative to its event retentions.

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