Standard & Poor’s (S&P) has lifted its ratings on WFI Insurance – formerly Wesfarmers General Insurance – and Lumley General Insurance NZ (LNZ).

They move from A- to A+ with a stable outlook, while the agency has also affirmed its A issuer credit rating on holding company IAG following its acquisition of Wesfarmers underwriting businesses in Australia and New Zealand.

The ratings on IAG’s core operating subsidiaries are affirmed at AA- with stable outlooks.

“The upgrade on WFI and LNZ is based on our view that the two insurers are ‘highly strategic’ subsidiaries for IAG following completion of the acquisition,” S&P analyst Caroline Strahan said.

This means WFI and LNZ are capped one notch below IAG’s group credit profile. 

“We also expect these businesses to continue the recent sound operating performance and be highly integrated with IAG,” Ms Strahan said.

“However… we regard a newly acquired subsidiary as having a heightened potential to face unanticipated risks, particularly during the first two years after the acquisition. Hence, we have assigned the ‘highly strategic’ rather than the ‘core’ status to WFI and LNZ.”

The businesses may be considered core operating entities in one to two years.

S&P expects IAG to maintain a strong competitive position, and assumes it will continue its robust reinsurance program and prudent reserving approach.

“We do not expect any upward or downward movement on the rating on the group over the next one to two years,” Ms Strahan said.