AM Best has revised its credit rating outlook for Guild Insurance to negative from stable, reflecting high uncertainty amid ongoing legal proceedings surrounding business interruption policy coverages in Australia.

AM Best affirmed its A- credit rating and a- Long-Term Issuer Credit Rating.

Guild features in two of nine cases that will have business interruption cover denials examined in a Federal Court test case brought by the Insurance Council of Australia: Guild v Dr Jason Michael t/a Illawarra Paediatric Dentistry and Guild v Gym Franchises Australia.

“AM Best views the company’s near-term operating results to be sensitive to revisions in COVID-19 related provisions and the challenging investment landscape … given the low interest rate environment in Australia,” the ratings agency said.

“Its risk-adjusted capitalisation may exhibit heightened volatility in the event that prospective earnings fall outside of expectation.”

AM Best assessed Guild’s balance sheet at “very strong” with an adequate operating performance, neutral business profile and appropriate enterprise risk management.

AM Best expects Guild’s balance sheet strength to remain at the strongest level over the medium term, noting the company has set aside provisions for potential COVID-19 related claims arising predominantly from business interruption coverages.

“Whilst Guild’s capital adequacy remains appropriate at present, future revisions of these provisions could drive volatility in its regulatory solvency and risk-adjusted capitalisation,” it says.

Guild is a leading provider of insurance protection to allied health professional associations, supported by its direct access to members of its parent, The Pharmacy Guild of Australia.

With gross premiums of $213 million and an overall market share of below 1% last year, Guild reported an operating loss and a combined ratio of 105% in fiscal-year 2020 after COVID-19 related provisions and higher-than-expected losses from weather events.