International credit ratings agency A.M. Best has downgraded its ranking of the local government insurer Civic Assurance in the wake of the Christchurch earthquake and aftershocks.
A.M. Best Co. downgraded Civic's financial strength rating from "A" (excellent) to "B++" (good) and its issuer credit rating to from "a" to "bbb+",and assigned both ratings a negative outlook.
"Civic Assurance is contemplating raising new capital to support its re-entry into the underwriting catastrophe exposed business, and A.M. Best will revisit the company's ratings when recapitalisation plans are finalised," the ratings agency said.
The credit agency - which signalled in March that the review was under way - had previously said it had concerns about the downgrading of one of Civic Assurance's reinsurers and the resultant impact on Civic's capitalisation.
Today it said the ratings downgrade reflected the accumulated impact of the Christchurch earthquakes on Civic Assurance. They had stressed the company's risk-adjusted capitalisation, because with each of three major tremors, Civic had had to pay the first $3 million of the subsequent claims, halving its capital from $20 million to $10 million.
"While Civic Assurance's reinsurance programme has helped it withstand the calamities of the past nine months, the credit risk associated with its reinsurance recoverables weighed significantly," said A.M. Best.
The ratings also took into account the impact on Civic Assurance's business profile, and its withdrawal from insuring material damage/business interruption, which was due to the unavailability of reinsurance support and its current capitalisation level.
Civic Assurance, which is wholly-owned by territorial and regional authorities and insured a lot of councils, announced last month that it would not be offering property insurance for any councils after June 30.
It was facing quake-related claims for $750 million.
Councils other than Christchurch and Waimakariri would be able to get cover from other insurance companies that had reinsurance - though it would cost much more - but the reinsurers did not want to take on the two councils with the most quake damage.
Civic said it would look for reinsurance for next year, and expected to start offering property insurance again.
