Accuro gets its first rating

It has been given a ‘BB+’ financial strength rating and the outlook is stable.

S&P says the ratings reflects Accuro’s strong risk-based capitalisation, conservative investment profile, and supportive liquidity position.

“We also hold a positive view of Accuro's ability to grow its membership base despite challenging market conditions. Offsetting these strengths are the insurer’s cyclical operating performance and moderate earnings base.”

“While operating deficits in recent years have lowered Accuro's capital base, we do not expect any further significant capital deterioration through write downs,” S&P says.

"As Accuro pursues its growth plans, its philosophy to target break-even performance may reduce its risk-based capitalisation over the longer term. However, we expect capitalisation to remain strong.

Accuro's moderate earnings base and small absolute size leave it susceptible to cost shocks that might be more easily absorbed by larger peers. Costs of meeting regulatory requirements, system changes, and operations are spread over a smaller revenue base. As such, the insurer may face a competitive disadvantage over the longer term. We expect Accuro's cost base to increase gradually, but at a lower rate than revenue growth. As business volumes increase, we expect expense measures to improve.

“The stable outlook reflects our expectation that Accuro's membership numbers will continue to increase as Accuro's value proposition reaches a wider audience,” said credit analyst Philip Chung. “We expect loss ratios to be sustained at or below industry levels, and that Accuro will continue to maintain its underwriting standards. We believe Accuro's operating expenses will increase at a slower rate than business growth, and as such, we expect expense ratios to gradually reduce.”

“As we have factored in initiatives undertaken by Accuro to increase revenue and reduce cost pressures, an upgrade will be unlikely in the near future,” Chung says. “However, we would hold a positive view of Accuro's ability to sustain growth momentum and manage its business in line with management forecasts. The ratings may be lowered if underwriting performance deteriorates or if risk-adjusted capitalisation worsens significantly.”