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

These ratings reflect Quest’s balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM). The ratings also factor in the neutral impact from the company’s ultimate majority shareholder, Federal Pacific Group Limited.

Quest’s balance sheet strength assessment is underpinned by its risk-adjusted capitalisation, which was at the strongest level at fiscal year-end (31 March) 2024, as measured by Best’s Capital Adequacy Ratio (BCAR). Prospectively, AM Best expects the company’s risk-adjusted capitalisation to remain at least at the very strong level, supported by its prudent capital management policy, with dividends payable only when there is sufficient buffer in its regulatory solvency capital. Offsetting balance sheet strength factors include a material affiliated asset, which weakens the company's quality of capital. In addition, Quest has a small absolute capital base at NZD 22.6 million, which increases the sensitivity of the risk-adjusted capitalisation to stress scenarios.

AM Best assesses Quest’s operating performance as adequate. Quest’s operating performance continues to be supported by its robust underwriting performance and positive investment returns. In fiscal-year 2024, the company recorded a combined ratio (net/net, IFRS 17) of 84.0%, as compared to the 88.8% recorded in fiscal- year 2023. Prospectively, loss ratios are expected to be elevated, driven by the rapid business growth in the less profitable comprehensive vehicle insurance (CVI).

Quest’s business profile assessment of limited reflects its small market presence, geographic concentration and relatively niche product offering, largely as a provider of CVI and mechanical breakdown insurance (MBI) in New Zealand. The company’s scale of operation has increased significantly over the last five years, driven by both growth in Quest’s direct distribution channels and its strategic partnership with Janssen Insurance Limited (Janssen), a third-party distributor of motor-related insurance. In addition, Quest’s reliance on Janssen has increased in recent years, with the related distribution channel accounting for over two-thirds of the gross premiums in fiscal-year 2024.

AM Best assesses Quest’s ERM as appropriate given the current size and complexity of its operations. The company remains exposed to elevated levels of underwriting and execution risk following its recent business expansion. However, this risk has been mitigated partially to date through adequate monitoring of underwriting performance, and a conservative approach to pricing and reserving.

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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