Pinnacle Life gets a rating
No frills life insurer, Pinnacle Life, gets a credit rating from AM Best.
Monday, July 16th 2012, 6:00AM 
9 Comments
The rating agency has assigned a financial strength rating of B (Fair) and an issuer credit rating of "bb+" to The Pinnacle Life Insurance Partnership. The outlook assigned to both ratings is stable.
The assigned ratings reflect Pinnacle's direct distribution capabilities, comparatively low lapse ratios and favorable reinsurance arrangements, AM Best says.
Pinnacle mainly underwrites simple life insurance in the no-frills term life segment of the New Zealand market, relying primarily on direct distribution.
The company's direct distribution capabilities have been enhanced by its online underwriting platform, which generated the majority of its new policies in the past five years. Growing at around 21% annually, Pinnacle's gross written premiums outpaced the market in the five years to March 31, 2012 (according to unaudited accounts).
Pinnacle has established a niche in its targeted market segment. This is reflected in its lapse ratio, which has been maintained below the market average.
Pinnacle's risk-adjusted capitalisation and net benefits to net premiums written ratio are significantly supported by its reinsurance arrangements. These significantly reduce retained underwriting risk and contribute to keeping its net claims at a low and stable level.
Offsetting rating factors include Pinnacle's high expense ratio and the high proportion of net policy assets on its balance sheet.
"Direct distribution expenses, such as advertising, have been considerable," AM Best says. "Pinnacle's expense ratio exceeded 100% over the past five years. Management is aware of the need to control expenses."
The ratings agency says as a large proportion of the company's expenses are related to advertising. It anticipates that Pinnacle will have the ability to reduce its expenses going forward.
Net life policy assets and movements have accounted for the majority of Pinnacle's reported earnings and net assets (89% of net assets as of March 31, 2012 according to unaudited accounts).
"This is a strain on its risk-adjusted capitalisation as the value of net life policy assets depends on retaining inforce policies. Management is contemplating raising capital from new investors. This could, potentially, significantly strengthen Pinnacle's risk-adjusted capitalisation by reducing net life policy assets relative to reported capital."
AM Best plans to review Pinnacle's ratings after the completion of the planned capital injection.
"A substantial reduction in the proportion of Pinnacle's net life policy assets to reported capital could lead to upward rating actions. However, a negative deviation to the company's forecast adjusted policyholder surplus could lead to downward movement on the ratings."
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Comments from our readers
From what I can see, anything Naomi Ballantyne or Chris Coon is involved with turns to gold.
"Mrs Client I'm sorry but your health insurer doesn't cover your $65,000 chemotherapy bill not funded by PHARMAC"
"but Mr Adviser we've paid premiums all this time to protect us where the public health system could not, on your advice!"
"Mrs client take comfort, your insurance company has an A rating"
"Mr Adviser, who is your DRS?" highestdprovider
have i missed something..where did PHARMAC come up in the discussion?
Neither of the two health insurance companies that provide the most comprehensive cover for non-pharmac drugs has an A rating. One has a B++ (AM Best)and the other is not yet rated, so the implication is that any current A rated company does not cover non-pharmac funded drugs optimally or at all.
Given Pinnacle's advertising that implies that its premiums are cheaper than mainstream insurers' premiums, I am intrigued that the AM Best comment:
"Direct distribution expenses, such as advertising, have been considerable," AM Best says. "Pinnacle's expense ratio exceeded 100% over the past five years. Management is aware of the need to control expenses." appears to have been overlooked! It seems that distribution expenses are high! How surprising!
You can't go past the inescapable fact that purchasing life insurance forces people to contemplate the world after they have died and that is not something that most people do comfortably. It takes professional advisers to bring our clients face-to-face with their own mortality and to encourage them to make provisions for their loved ones. No amount of advertising (or beating up on advisers) has ever done a better job at this task than have professional advisers!
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If the re-insurer is paying {which I doubt it will be }, if I was an adviser who was really concerned about my clients I would ask the B rated insurer to provide me with a copy of the agreement on this area between the B rated insurer and the re-insurer.
To be clear of FMA risk or to be an adviser with integrity no doubt many advisers have asked and the insurer has readily provided it. Perhaps one of the advisers could send a copy via this media. The advisers are quick to criticise Pinnacle for its method of acquiring business. No doubt there credit rating will now be on the list.
Please be careful as some of you are placing business with an insurer with similar credentials. Remember everything we do puts our wonderful industry at risk. Is a B anything rating great for the image of our industry.
Our friends in the Financial Planning industry are still reeling from there venture into the B rated area. If you are serious about your business and/or your clients future be clever enough, be ethical enough to stay away from B rated anything. Or will the craving for more commission and the unlikely event of a few shares overrule common sense? I am trying to increase the image of our industry for everyone's good.