Obtaining a Rating
What is a Rating?
A rating is an assessment of an insurer's ability to pay present and future claims. A rating is represented by a letter, number and/or symbol and forms a part of a rating scale (eg., AA, B or C-).
Application
In summary, the requirement to obtain a rating applies to every insurer that conducts insurance business in New Zealand, whether by way of a New Zealand incorporated company or as a branch operation. There are however, the following exceptions:
- The Act does not apply to:
- Any business of life insurance carried on by an insurer;
- Captive insurers;
- Reinsurers.
- An insurer which is not party to any contract of disaster or general insurance may elect not to obtain a rating by registering a notice of election not to be rated. (A contract of disaster or general insurance means insurance against loss, destruction or damage to tangible property)
Insurers which were carrying on business on 25 November 1994 were required to:
- Obtain a rating by 25 November 1995, and to register that rating within 5 working days of receiving notice of the rating; or
- Register a notice of election not to be rated by 25 November 1995.
New entrants to the insurance market must obtain and register a rating, or register a notice of election not to be rated, before commencing business.
Who is Rated?
A rating must be obtained for the legal entity which enters into contracts of insurance in New Zealand. Thus, where the business is carried on by a New Zealand incorporated subsidiary, it is that subsidiary which must obtain a rating. Where business is carried on as a branch of an overseas company, the rating must be obtained in respect of that overseas company.
Obtaining a Rating
Insurers must be rated by a rating agency which has been approved by the Registrar of Companies. The Registrar has approved the following rating agencies:
A.M. Best Asia Pacific Limited
Unit 5707, Central Plaza
18 Harbour Road
Wanchai, Hong Kong
Phone: 852 2827 3400
Fax: 852 2824 1833
Contact Person: Moungmo Lee
Fitch Ratings
Level 22, 300 Queen Street
Brisbane, Queensland 4000
Phone: (0061) 7 3222-8600
Fax: (0061) 7 3222-8622
Contact Persons: John Miles; Andrew Smith
Standard & Poor's (Australia)
Level 37, 120 Collins Street
Melbourne 3000, Australia
Phone: (0061) 3 9650 9813
Fax: (0061) 3 9650 0305
Contact Persons: Ian Thompson; Michael Vine
In accordance with the Act, the Insurance Council has entered into agreements with these approved rating agencies as to the terms upon which ratings are to be provided to insurers. Copies of the agreements may be inspected free of charge at any Companies Office.
Rating Review
Insurers who are required to obtain a rating must have a current rating, at all times. A current rating is a rating which is not more than 1 year old.
Insurers must therefore renew their ratings annually. New annual ratings must be registered.
Certificate of Rating
Within 5 working days of receiving a rating, an insurer must register the rating by delivering a "Certificate of Rating", which has been prepared by its rating agency, to the Registrar of Companies:
C/- Insurance and Superannuation Unit, Business Services Branch
Ministry of Economic Development, P O Box 10867, Wellington
Phone: +64 4 913 3651, Fax: +64 4 913 3652
Upon registering its first rating, an insurer must also register the rating scale of which its rating forms part, together with an explanation of that rating scale. The rating scale and explanation will be provided to the insurer by its rating agency.
Notice of Election Not to Be Rated
If an insurer, which is not party to a contract of disaster or general insurance, does not wish to obtain and register a rating, it may register a notice of election not to be rated. The notice must be in the prescribed form. A copy of the prescribed form of election not to be rated is available at any Companies Office.
Notices of election not to be rated must be delivered for registration to the Insurance and Superannuation Unit at the above address.
Credit Watch Warning
A rating agency may, at any time, issue a certificate of credit watch warning in respect of an insurer's rating. A credit watch warning indicates that the agency is considering a possible downgrading in the insurer's rating.
Within 5 workings days of receiving a credit watch warning, an insurer must register the warning by delivering the certificate of credit watch warning to the Insurance and Superannuation Unit.
Publication of Down Graded Rating
If an insurer receives a new rating which is lower in value than its previous rating, the insurer must:
- Within 5 working days of receiving a certificate of the downgraded rating, register the new rating; and
- Within 10 working days of receiving a certificate of the downgraded rating, give public notice that the rating has been downgraded.
"Public notice" means published in at least one issue of:
- The Gazette; and
- A newspaper usually published on every working day in the area of the insurer's place or principal place of business in New Zealand.
Advertising a Rating
If an insurer distributes an advertisement that refers to its rating, or any part of its rating, then the advertisement must also state, prominently:
- The rating; and
- The name of the rating agency which gave the rating; and
- Whether the rating agency which gave the rating is an approved rating agency (rating agency approved by the Registrar of Companies); and
- Any credit watch warning relating to the rating; and
- That any rating scale of which the rating forms part, is available for inspection at any New Zealand office of the insurer, or, if the insurer does not carry on business in New Zealand, at any New Zealand office of an insurance intermediary named in the advertisement.
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