AM Best has downgraded its outlook for Pacific International Insurance’s Australian arm to negative from stable, citing the “high levels of execution risks” presented by its growth plan for the business.

The insurer’s Financial Strength Rating was affirmed at B++ and Long-term Issuer Credit Rating at bbb.

The outlook downgrade from the ratings agency comes more than a week after its New Zealand operation was issued with “formal directions” by the Reserve Bank of New Zealand for repeatedly failing to comply with its reporting and disclosure obligations.

AM Best says Pacific International’s business profile is limited. While the company has undergone a material transformation from a small niche liability insurer to a more diversified general insurer in Australia and New Zealand, it is focused mainly on motor and related products.

AM Best says South Africa’s Badger International has injected $13.5 million in capital to support the insurer’s material change in operational scope since it took over the business in May 2018.

The material change was related to Pacific International Insurance’s acquisition of the renewal rights to “a sizeable portfolio of existing motor business in Australia” and the associated increased capital requirements.

“The negative outlooks reflect the heightened sensitivity of Pacific’s balance sheet strength and operating performance assessments to execution of the company’s growth plan,” AM Best said.

“AM Best considers the company’s latest business plan to present high levels of execution risk, and failure to successfully achieve it could weaken Pacific’s operating performance and risk-adjusted capitalisation materially.”

The ratings agency says it expects Pacific International’s prospective risk-adjusted capitalisation to deteriorate notably in the coming years as a result of the further substantial premium growth targeted by the company.

It also anticipates capital adequacy to remain highly sensitive to the successful execution of the company’s business plan, and to the achievement of performance targets and projected capital generation over the medium term.

It expects Pacific to remain a modest-sized player with a market share below 1% in the Australia general insurance market over the medium term.