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

Both ratings have been placed under review with developing implications, which the agency says reflects ACS’s near-term regulatory risk.

ACS (NZ) Ltd, previously known as Ansvar NZ, withdrew from the New Zealand market last year after its earthquake losses totalled about $535 million.

The company describes its New Zealand operations as a claims management service.

The NZ High Court recently approved an ACS-devised scheme of arrangement for handling and settling claims arising from the Christchurch earthquakes, despite reservations about the company’s solvency being expressed by the industry regulator, the Reserve Bank of New Zealand.

AM Best bases its negative ratings on “adverse development to the February 2011 earthquake cost estimates” and slower than anticipated claims settlements during the first half of this year which have contributed to a “higher than anticipated level” of reinsurance recoverable risk.

Ansvar CEO Andrew Moon told insuranceNEWS.com.au the revised ratings were expected.

“We note that the financial strength rating is B- (fair) [which] in no way impacts on our ability to continue to provide outstanding claims service to all of our claimants,” he said.

Although the capital position of ACS has been somewhat strengthened with funds from its parent company, UK-based Ecclesiastical, AM Best describes it as “vulnerable” to any further increases in claims estimates, especially if these extend beyond the company’s extended reinsurance coverage of $NZ570 million ($439.7 million).

But Mr Moon says good progress continues to be made in relation to settlements.

“Based on current knowledge, we believe all claims will be paid in full and our intention is to settle all claims as quickly and efficiently as possible,” he said.