New Zealand's Veterinary Professional Insurance Society solvency to weaken: analyst

This is due to a significant increase in the regulatory solvency requirement.

New Zealand-based Veterinary Professional Insurance Society balance sheet performance was boosted by its risk-adjusted capitalisation, according to AM Best. 

However, the not-for-profit organisation's regulatory solvency is expected to weaken to a marginal level above the requirement by 30 September, compared to the previous year. 

This is due to a significant increase in the regulatory solvency requirement following the loss of VPIS's regulatory small insurer status. 

Other considerations include limited financial flexibility and a small capital base, which make the organisation's capital adequacy sensitive to stress scenarios. 

VPIS relies heavily on reinsurance, although its reinsurance program provides protection against large losses and aggregate exposure.

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VPIS reflect its adequate balance sheet strength, adequate operating performance, limited business profile, and appropriate enterprise risk management, as assessed by AM Best.

AM Best considers VPIS's operating performance to be adequate, with a five-year average return-on-equity ratio of 5.1% (fiscal years 2018-2022). 

The organisation's elevated combined ratio, reflective of its pricing strategy as a not-for-profit members' society, is typically observed. 

VPIS's expense ratio is higher than the industry average due to its size and recent investments in technology. Investment income plays a significant role in VPIS's operating performance, with a five-year average net investment yield of 4.0% (fiscal years 2018-2022).