OREANDA-NEWS. Fitch Ratings has revised the Outlook on New Zealand-based Southsure Assurance Ltd.'s (Southsure) Insurer Financial Strength (IFS) rating to Positive from Stable, and affirmed the IFS rating at 'BBB+'.

KEY RATING DRIVERS
Southsure's Outlook is revised to be consistent with that of its parent, Southland Building Society (SBS; Long-Term Issuer Default Rating: BBB/Positive). The affirmation of Southsure's rating reflects the operational synergies it receives from being part of a larger financial institution, SBS. Fitch believes SBS, which trades as SBS Bank, would be willing to provide support to Southsure, if needed, as Southsure provides complementary insurance products to SBS's customers. The relationship provides Southsure with access to strong distribution channels and a valuable customer base.

The rating also takes into consideration Southsure's consistently sound financial fundamentals. The insurer achieved a 17.5% pre-tax return on assets in the financial year ended 31 March 2015 (FY15) and averaged 15% over the last five years. For the six months ended 30 September 2015, its ROAE and pre-tax ROA were 36.3% and 19.1%, respectively, on an annualised basis.

Southsure's capital level is commensurate with its business profile, although the absolute capital base is modest. At 30 September 2015, its regulatory solvency ratio was 124.5% (31 March 2015: 121%).

External risks to the franchise and operational risks, no matter how remote, weigh more heavily in Fitch's rating decisions for small insurers like Southsure. The company remains largely dependent on the group's customer base to sell its products, although it has strengthened the sale of third-party non-life insurance policies, which provide greater customer and earnings diversity.

RATING SENSITIVITIES
Triggers for an upgrade: The key upgrade trigger for Southsure would be an upgrade in SBS's rating.

Triggers for a downgrade: Southsure's rating would be downgraded should SBS be downgraded. For example the franchise may be negatively impacted in the unlikely event that Southsure became less important to the group and access to the group's distribution channels was restricted.

Southsure's rating could be downgraded should it unexpectedly fail to maintain solid solvency margins above its regulatory minimum requirement of NZD5m. Given its high rating, a strong buffer above minimum regulatory capital requirements is essential to protect against the impact of major regulatory changes, to comply with licensing requirements and maintain its viability.