Agency cuts Southern Cross credit rating

The international ratings agency Standard & Poor's yesterday cut the credit rating of the embattled health insurer Southern Cross.

Standard & Poor's lowered its insurer financial strength and counterparty credit rating on Southern Cross to A-plus from AA-minus. The outlook on that rating was revised to stable from negative.

"Southern Cross has experienced some collateral damage to its leading business franchise following the recent claims delay through systems problems," said Michael Vine, director of financial services ratings.

"While the backlog has now been eliminated and processing is back to normal, the organisation has lost slight market share, suffered some senior management uncertainty and deferred its strategic intention to raise premium rates, further delaying its return to operating profitability."

Southern Cross yesterday announced that members would face premium rises of about 16 per cent in the middle of this year, after an independent review found underwriting losses meant a rise in premiums was "imperative".

Southern Cross audit committee chairman and board spokesman Bryan Kensington expected price increases of between 16 and 17 per cent on average.

A 16 per cent increase would add about $35 a year to the premium paid by an adult on a KiwiCare scheme.

For a family of two adults and one child with a RegularCare policy, the annual increase would be about $120.

Mr Vine said that, although capitalisation and liquidity levels remained strong, the insurer's earnings had deteriorated and no longer supported a higher rating.

The outlook for that rating was stable, with Standard & Poor's expecting operating performance to stabilise next year as the premium increases took effect.

Southern Cross is the number one health insurer in New Zealand with around 810,000 members.

- NZPA

nzherald.co.nz/southerncross