Ansvar's near-term operating results are vulnerable to revisions in COVID-related provisions and a challenging investment landscape, AM Best says.

The ratings agency affirmed Ansvar’s A- (Excellent) rating and Long-Term Issuer Credit Rating of “a-” (Excellent) but says the outlook is negative.

Ansvar provides general insurance products to care, community, faith, education and property owners. It reported an operating profit and a return-on-equity ratio of 3.1% in 2020, though its underwriting operations remained loss making.

AM Best noted Ansvar’s high reinsurance dependence to support the underwriting of large limit property risks and to manage long-tail liability exposures.

Over the past two years, Ansvar’s financial performance was been hampered by reserve strengthening related to liability exposures for physical and sexual abuse (PSA) claims, discount rate movements and several catastrophe events.

Last year, Ansvar set aside provisions for potential COVID-19 related claims arising predominantly from business interruption (BI) coverages. AM Best says capital injections of $20 million in 2020 have bolstered capital adequacy to support Ansvar’s expansion and offset the impact from the COVID-19 reserve provisioning.

“Whilst Ansvar has a long-established presence in its targeted niche sectors in which it leverages its strong expertise and reputation, this advantage is offset partially by the company’s limited control over distribution,” AM Best said.

“This is due to its reliance on non-affiliated intermediary channels, as well as strong competitive pressures in Australia’s general insurance market.”

AM Best assessed Ansvar’s balance sheet strength as “very strong”, its operating performance and enterprise risk management as adequate but says the negative outlook reflected continued pressure on Ansvar’s underwriting and operating performance fundamentals.

Its investment portfolio is low-risk, with assets invested in cash and high-grade fixed-interest securities, and its five-year average return-on-equity ratio 2.3%.

The insurer receives explicit reinsurance support from Ecclesiastical Insurance Office plc (EIO), including a shared global catastrophe excess of loss program and the recent placement of an intra-group reinsurance program is “an effective response to further adverse development of PSA claims”.

Ansvar’s risk-adjusted capitalisation is expected to move to the strongest level over the medium term.