Provident Insurance management competence to drive operations, products: AM Best

PICL's operating performance is deemed adequate.

Provident Insurance (PICL) is expected to carry on with its risk management capabilities development in the medium term to boost operations and product offerings, said AM Best.

The assessment resulted in a positive outlook, grounded in the progressive improvement of PICL's balance sheet fundamentals. This includes a more robust and stable risk-adjusted capitalisation and an expanded absolute capital base. The successful execution of PICL's business plan is anticipated to further enhance internal capital generation.

The assessment of balance sheet strength relies on PICL's risk-adjusted capitalisation, reaching its peak in fiscal year 2023 as per Best's Capital Adequacy Ratio (BCAR). 

AM Best anticipates sustained strength in PICL's risk-adjusted capitalisation over the medium term, supported by positive retained earnings and a prudent investment strategy. However, the exposure to long-duration policies increases reserving risk, acting as a counterbalance.

PICL's operating performance is deemed adequate, evident in a positive trend in the five-year average return-on-equity ratio of 13.8% (FYs ending 31 March 2019 – 2023).

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Despite a short-term rise in the expense ratio due to significant investments in information technology and pricing capabilities, these enhancements are expected to underpin future operating performance.

The business profile of PICL is characterised as limited, reflecting its relatively modest scale and confined geographical focus solely on New Zealand. 

As a niche insurer concentrating on mechanical breakdown insurance and private motor vehicle products, PICL's distribution primarily occurs through motor dealerships and select partners within its domestic market.

AM Best considers PICL's Enterprise Risk Management (ERM) appropriate, considering its operations' size and complexity. 

The effective execution of underwriting strategies and planned infrastructure investments are identified as key risk exposures. Over the medium term, PICL's risk management capabilities are anticipated to evolve, supporting operational scale expansion and product diversification.