Financial strength ratings explained

New Zealand life insurers operate under a prudential regime administered by the Reserve Bank under the Insurance (Prudential Supervision) Act 2010. To be licensed, an insurer must meet solvency standards, hold capital against the risks on its books, satisfy fit-and-proper requirements for its directors, and maintain and disclose a current financial strength rating.

That last requirement is why every insurer’s website carries a line of letters somewhere. The rating is an independent agency’s opinion of the insurer’s capacity to meet its policyholder obligations. It is forward-looking, it is reviewed periodically, and it can be upgraded, downgraded or placed on watch.

It is also routinely over-interpreted. A rating tells you about balance sheet strength and the likelihood the company can pay. It tells you nothing about whether the wording is generous, whether claims are assessed reasonably, or whether underwriting will accept your history.

The three agencies most often seen on New Zealand insurers use similar letter grades with different conventions, running from the strongest categories down through investment grade to vulnerable, with plus and minus modifiers inside categories.

Three things a rating is not

1. 1It is not a product rating. An insurer with a strong financial rating can sell a narrow wording, and an insurer a notch lower can sell an excellent one. The rating agency is not assessing the terminal illness definition.
2. 2It is not a claims service rating. Nothing in it measures how reasonably an insurer interprets its own definitions or how long it takes to pay.
3. 3It is not a guarantee. It is an opinion at a point in time, and it changes. It is also not a government guarantee — New Zealand has no policyholder compensation scheme of the kind some other countries operate.

These are the details that decide whether the cover does what you expected. Read them before you compare on price.

• The date of the rating and when it was last reviewed — an old rating is less informative than a current one.
• The outlook attached to it, which signals the agency’s view on the likely direction.
• Which entity is rated. A group rating is not necessarily the rating of the New Zealand licensed insurer writing your policy.
• That a brand and its underwriter may have different ratings, because they are different companies.
• That New Zealand has no policyholder compensation scheme, so prudential supervision and the insurer’s own strength are the protections that exist.
• That a rating difference of one notch between two licensed insurers is rarely the most important difference between their products.

Every New Zealand insurer writes life and living cover to its own wording, and the words are where the money is. Two policies that look identical on price can pay very differently when it matters. Closing that gap is the entire job of an adviser.

• An adviser can tell you which licensed entity actually underwrites a policy, which is the entity whose rating matters.
• Ratings are one input among several. An adviser weighs them against wording quality and underwriting appetite rather than treating them as a ranking.
• Where an insurer’s rating or outlook changes, an adviser can tell you whether it has practical implications for an existing policy.
• An adviser can explain what prudential supervision does and does not protect, which is not obvious from the marketing.
• For large sums insured, an adviser may recommend splitting cover across insurers, which is a diversification decision as well as a pricing one.

There are three ways to buy life cover in New Zealand, and they are not equivalent. You can buy direct from one insurer, which means you see one product range and one underwriting appetite. You can buy through your bank, which usually means a single insurer’s product sold under the bank’s brand, often with narrower definitions. Or you can go through an adviser, who quotes several insurers at once and is required to put your interests first.

The premium you pay is the same either way. Insurers build adviser commission into their pricing whether or not an adviser is involved, so going direct does not get you a discount — it just removes the person whose job is to argue your corner at application and at claim time.

• An adviser can see which insurer is currently taking your health history on standard terms, and which one will load or exclude it.
• An adviser can structure cover across two insurers if that produces a better outcome than putting everything with one.
• An adviser handles the underwriting back-and-forth, and is the person who chases the claim when a family is least able to.
• An adviser has to document why the recommendation suits you, which is a written record you can hold them to.

We are a referral service, not an insurer. We do not quote premiums and we do not sell policies. What we do is put you in front of one licensed New Zealand adviser who can compare the market properly.

1. 1

   You tell us what you are looking at

   The form takes about a minute. Nobody asks for your medical history on a web form — that conversation happens with the adviser, properly, and only once you have decided to proceed.

2. 2

   An adviser calls you

   A licensed New Zealand adviser talks through your situation: who depends on you, what you owe, what you already have in place, and what you are actually worried about.

3. 3

   They compare the market

   The adviser quotes across the major insurers, checks which of them will take your health history on the best terms, and puts the options side by side in writing.

4. 4

   You decide, in your own time

   There is no obligation and no cost to you. If the answer is that you already have enough cover, a good adviser will tell you that.