AM Best has affirmed Youi NZ’s financial strength rating of B++ and long-term issuer credit rating of BBB, with the outlook as stable.

But the ratings agency has warned that Youi NZ’s small premium base presents challenges.

The ratings reflect Youi NZ’s strong balance sheet and “prudent reinsurance program and conservative investment approach”.

Claims experience during the company’s first three years of operation were “largely consistent” with assumptions used in pricing policies, the rating agency says.

“Partially offsetting these positive rating factors is Youi NZ’s high expense ratio, which is due to the company having a small premium base from which to cover its operating expenses.

“While positive rating actions are unlikely in the near term, a material decline in Youi NZ’s risk-adjusted capitalisation, due to a failure to meet its projected underwriting performance, may trigger negative rating actions.”