Ratings agency AM Best has downgraded the financial strength rating of Ansvar New Zealand’s run-off operator ACS to B+ (Good) from B++ (Good) and its issuer credit rating to “bbb-” from “bbb.”

Ansvar changed the name of its New Zealand operation to ACS (NZ) Ltd and put it in run-off after deciding last year to withdraw completely from the New Zealand market. Its earthquake losses total around $530 million.

Both ratings have been removed from being under review with negative implications and assigned a negative outlook, which the agency says reflects ACS’ stressed risk-adjusted capitalisation and weakened business profile.

The company’s clients include more than 600 churches. Some were badly damaged by the Christchurch earthquakes, following which Ansvar could not get affordable reinsurance.

Ansvar and its UK-based parent Ecclesiastical Group have given ACS a short-term liquidity injection to facilitate claims cashflows and timing of reinsurance recoveries, but AM Best says these are outweighed by the amount of reinsurance recoverables on the ACS balance sheet.

The pace at which these are recovered will be a major driver for the company’s risk-adjusted capitalisation going forward, the ratings agency says.

Without any underwriting income, capital could be eroded if investment income does not offset run-off expenses.