Resolution Life Australasia's has reported a net loss of A$151m ($98.27m) in 2023 (2022: profit of A$310m) under the new accounting standard, IFRS17, notes Fitch Ratings.
The loss was driven by a one-off provision relating to its wealth protection business. This followed the decision by N M Superannuation Proprietary to terminate or cease cover under Master Trust policies with effect from 1 April 2024. As a result, RLA fully impaired the Master Trust asset for insurance acquisition cashflows (gross of reinsurance).
The insurer's underlying earnings, excluding the Master Trust impact, have been sound with both the wealth protection and superannuation and investments businesses recording profits.
Ratings affirmed
Fitch Ratings has affirmed RLA’s Insurer Financial Strength (IFS) Rating at 'A' (Strong) and Long-Term Issuer Default Rating (IDR) at 'A-'. Fitch has also affirmed Resolution Life New Zealand's (Resolution Life NZ) 'A' (Strong) IFS Rating and 'A-' Long-Term IDR. The outlook on these ratings is ‘Stable’.
Apart from earnings, key rating drivers for RLA include:
Core Subsidiary: Fitch regards RLA as a core subsidiary of its ultimate parent, Resolution Life Group Holdings (RLGH, IDR: BBB/Stable). However, Fitch evaluates RLA based on the standalone credit quality of the Australia and New Zealand operation, given its view of limited synergies with other members of RLGH group. Fitch regards Resolution Life NZ as a core subsidiary of Resolution Life NOHC (RLNOHC) — RLA's holding company in Australia — as it allows RLA to satisfy regulatory requirements for its branch operation in New Zealand.
Market Conditions Support Strategy: Regulatory scrutiny of the life sector in Australia and New Zealand has been high, with regulators intervening to improve sector performance and customer outcomes. Insurers, including RLA, have been redesigning and repricing products and revisiting distribution strategies. Fitch thinks these dynamics should provide RLA with potential acquisition targets and support its strategy.
In April 2024, RLNOHC announced that it would acquire Suncorp Group’s New Zealand life operation, Asteron Life. The acquisition will improve the group's competitive positioning in New Zealand and the group has decided to keep the book open to new business. This follows the RLA's completion of the acquisition of AIA Group’s (IDR: AA-/Stable) Australian superannuation and investment book in July 2023.
Solid Capitalisation: Fitch assesses RLA's capitalisation as 'Very Strong' based on the strength of the consolidated Australia and New Zealand operations. The group's Prism Global score was 'Extremely Strong' at end-2023, while coverage of its regulatory prescribed capital amount (end-2023: 2.4x) has been above 2x in recent years. Fitch’s assessment also considers potential risk to capital that could stem from future acquisitions. RLA's financial leverage ratio is low (end-2023: 6%).
'Moderate' Company Profile: Fitch ranks RLA's company profile as 'Moderate' compared with that of other insurers in Australia, reflecting its 'Moderate' business profile and 'Neutral' corporate governance. The ranking considers RLA's large operating scale, its strategy of managing liabilities in Australia and New Zealand, and the inherent execution risk in acquiring and pricing businesses. Fitch believes these risks are reduced by RLA's experience in managing a large number of life insurance products in the two countries.