China Taiping Insurance’s New Zealand subsidiary has been downgraded by ratings agency AM Best, as the company’s rundown of business there leaves its capital position in decline.

AM Best now puts China Taiping NZ’s financial strength rating at B+, or “good”, down from B++. Its issuer credit rating is at bbb-, down from bbb. The outlook for both ratings is stable.

The cuts reflect the financial reality for China Taiping NZ as it winds down its exposure to the New Zealand market over the next few years.

On August 1 it stopped taking on new business in the country, meaning its capital position will decline as premium income slows and run-off expenses exceed investment income.

Existing policies are expected to expire by August 31 next year, while claims relating to the earthquakes of 2010 and last year aim to be settled by 2014.

The rundown should leave China Taiping NZ’s regulatory capital marginally above mandated levels by 2014.

However, AM Best says a failure to meet the minimum regulatory capital level and a longer than anticipated run-off period beyond 2014 “could result in downward pressure to the company’s ratings”.

China Taiping NZ says its earthquake losses remain within reinsurance limits, helping to protect it from further capital erosion.