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Partners Life

Partners Life AUD Notes

IAM Credit View

“New Zealand is a safe and beautiful first world country, with a stable political system and a can-do culture. With a population of only 5.1m and a land mass the same size as the United Kingdom, we box significantly above our weight on the world stage.” (Partners Life Investor Presentation)

Partners Life is a major competitor in the New Zealand life insurance market and subject to the supervision and scrutiny from both RBNZ and the FMA. The broader New Zealand macro-economic environment continues to provide support for the life insurance and health insurance industries.

Partners Life has an extensive distribution capability which has been enhanced by the BNZ’s distribution arm and should lower all-in underwriting costs. The company has a solid track record of operating performance with a four-year underlying insurance profit CAGR of 27.6%. As at 31 March 2021, Partners Life has a solvency ratio of 111% and margin of NZD59m above regulatory requirements (prior to recent capital raise by HoldCo in October 2021).

Note: RBNZ solvency ratios are calculated differently to APRA coverage ratios and are not comparable – see attached FSC IFRS 17 paper. Under proposed interim changes, the aggregate solvency ratio for the respondents increased from 129% to 242% because of the proposed interim changes. Solvency ratios across New Zealand life insurers will be more comparable due to removing the distorting effect of implicit deferred acquisition costs (DAC) within the policy liabilities.

The note has an AM Best Issuer Rating is a- but no issue rating. IAM’s preliminary credit research estimates a HoldCo credit rating in the BBB range.

Pricing of BBSW3M +425-450bps translates into an all-in yield of between 6-6.25% based on current swap base rates. Considering a new issue premium and relatively less liquidity (being unrated), we believe there is a decent discount on this new AUD note at quoted pricing levels.

Chart 1. Proposed Interim Changes on Life Solvency Ratios

Source: Investor Presentation

Credit Fundamentals

Partners Group (HoldCo) is an unregulated insurer that provides life, trauma, disability, and major medical insurance products to around 215,000 customers. Partners Life (OpCo) is regulated by RBNZ. It was founded in 2011 and is based in New Zealand. The company’s shareholder base includes Blackstone (~50%), Maui Capital (9.8%), Rangatira Investments (~5.2%), and other minority shareholders. Since March 2021, Blackstone and other existing institutions have invested NZD44m, with a further NZD33m committed subject to regulatory approval.

Partners Life acquired BNZ’s life insurance business from NAB in December 2020 for NZD290m, a business which was already cashflow positive. The condition precedent for the acquisition was that BNZ would refer their life insurance customers to Partners Life. This made it the second largest player by in-force premiums in the New Zealand life insurance sector, with a market share of 12.5%.
The acquisition provided further scale to the business whilst also allowing Partners Life to not only compete as a price-market but also use BNZ’s distribution arm to lower all-in underwriting costs. The broader macro-economic outlook in New Zealand is favourable and provides strong support for the life and health insurance industries.

New Zealand GDP and population have experienced a steady average growth during the last ten years, ranking in the top positions amongst developed countries. The broader macro-economic environment continues to provide support for the life insurance and health insurance industries.

Chart 2. New Zealand Macro-Economic Statistics

Source: Investor Presentation

Partner’s Life in-force Annual Premium Income (API) has increased at a CAGR of ~37% over the past nine years (making it the fastest growing life insurer in New Zealand and second largest life insurer in New Zealand). As at 31 March 2021, In-force API was NZD389m. It features rich products at sustainable prices, while offering clients loyalty discounts and has significant market share in the IFA channel.

New business API grew at a CAGR of 11.6% between FY12 to FY20. New business volumes in FY21A reflected extraordinary impacts from COVID-19 lockdowns on adviser business models.

The company specialises in:

  • Individual risk protection with products that target middle- and upper income New Zealanders as well as key personnel of established New Zealand businesses; and
  • Major health insurance with products designed to pay for non-acute medical costs where the customer elects to have tests or treatment provided privatively rather than through the public system.

Chart 3. In-force Premium Growth

Source: Investor Presentation

The New Zealand life insurance market is largely underpenetrated to date. Partners Life believes this is due to lower levels of financial literacy, attitudes towards financial risk, and consumer misconceptions of governmental support (including the Accident Compensation Corporation).

Currently, Partners Life has a 12.6% market share of the total available risk market and a 3% share of total health in-force API. The total New Zealand life and health insurance market is ~NZD5.0bn of In-force API. Partners Life has strategically positioned itself as a provider of

  1. life insurance products bundled with
  2. health products through the IFA channel.

Partners Life offers its customers the opportunity to bundle life risk and health products together in a single portfolio. There is currently one other competitor who also offers its clients this opportunity.

Partners Life and AIA have collectively secured a dominant market share of life risk products which has been supported by this strategy. NIB has recently announced the purchase of Kiwibank, providing them the ability to bundle both life and health.

Chart 4. Partners Life Position in New Zealand Life Insurance Market

Source: Investor Presentation

As seen below, Partners Life total available risk market and the health insurance market have experienced historical growth in annual premium income (API). Partners Life total available risk market, which comprises individual risk products currently sold by Partners Life, has grown at a CAGR of 5.8% p.a. to NZD2.5bn since 2011.

The New Zealand health insurance market has grown at a CAGR of 5.7% p.a. to NZD2.2bn since 2011. There are currently no individual statistics collected for health insurance new business volumes in New Zealand.

Chart 5. Partners Life and Health In-Force Annual Premium Income Charts

Source: Investor Presentation

Table 1. Key Metrics

NZDm FY21, March Year-End CAGR since FY16
In-Force Premiums 389 18%
New Business Written 39 (2%)
Lives Insured 215,000 11%
Gross Premium Revenue 326 19%
Underlying NPAT 33 18%
Net Assets 595 33%

Chart 6. Key Performance Indicators

Source: Investor Presentation

Partners Life has established and strong global reinsurance relationships for individual risk, group, and extreme events. It uses reinsurance to provide protection against volatility in both earnings and solvency from potential adverse claims experience (including extreme events) as well as funding a share of new business acquisition costs.

Partners Life solvency ratio was 111% as at 31 March 2021, representing a margin of NZD59m over and above the required minimum solvency capital. This does not include an additional NZD44m capital subsequently received. Note: RBNZ solvency ratios are calculated differently to APRA coverage ratios and are not comparable.

The note is being issued at Partners Group Holding Company Limited (HoldCo) with the capital streamed down to Partners Life (OpCo) via equity (excluding debt servicing amount retained at HoldCo). A portion of the bond proceeds will be held at HoldCo that is equal to the cumulative debt servicing quantum throughout the life of the bond. Partners Life (OpCo) is regulated by RBNZ and has no obligations to service debt nor return capital throughout the life of the bond.

Chart 7. Partners Group Corporate Structure/LifeCo Solvency and Capitalisation

Source: Investor Presentation

Relative Value

Pricing of BBSW3M +425-450bps translates into an all-in yield of between 6-6.25% based on current swap base rates. Considering a new issue premium and relatively less liquidity (being unrated), we believe there is a decent discount on this new AUD note at quoted pricing levels.

Chart 8. Relative Value

Source: IAM Capital Markets

Key Bond Terms

Pricing: BBSW3M +425-450bps
Issuer: Partners Group Holding Limited
Guarantor: Partners Group Holding Limited
Issue Amount: AUD50-75m
Ratings: Unrated, but will have BondAdviser and AM Best Reports. AM Best Issuer Rating is a-
Tenor: 5 years
Rank: Senior Unsecured

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