RAM Ratings reaffirms MAA Holdings' debt ratings

Published on 05 September 2011
RAM Ratings has reaffirmed the respective long- and short-term ratings of MAA Holdings Berhad’s (MAA Holdings or the Group) RM200 million Commercial Papers/Medium-Term Notes (CP/MTN) Programme (2007/2014), at B1 and NP. The negative outlook on the long-term rating has been maintained. At the same time, the AAA(bg) rating of the first RM200 million MTN issue (2007/2012) under MAA Holdings’ CP/MTN Programme (the First Issue), which is guaranteed by DBS Bank Ltd (DBS Bank), has also been reaffirmed with a stable outlook. DBS Bank is rated AAA/Stable/P1 by RAM Ratings. The enhanced rating of the First Issue reflects the unconditional and irrevocable guarantee extended by DBS Bank; this enhances the credit profile of the debt issue beyond MAA Holdings’ inherent or stand-alone credit profile.



MAA Holdings’ stand-alone credit profile reflects the weak business profile of its core subsidiary, Malaysian Assurance Alliance Berhad (MAA Assurance). MAA Assurance’s life-insurance underwriting performance has deteriorated significantly in the last few years as a result of sizeable underwriting losses, mainly attributable to intense competition from larger players and the shift in its product strategy towards less capital-intensive insurance products following the implementation of the Risk-Based Capital (RBC) framework. Although MAA Assurance’s underwriting performance was supported by higher investment income in FYE 31 December 2010 (FY Dec 2010), which resulted in a surplus of RM59.5 million after taxation, this was still lower than the previous year’s RM183.0 million. At the same time, its general-insurance business turned around with a small underwriting profit, after several years of underwriting losses. Given its considerably weak earnings accretion, MAA Assurance’s capital reserves have been insufficient to meet the more stringent RBC requirements which took effect in 2009.

To meet the final MTN payment of RM140 million that must be deposited into the Debt Service Reserve Account (DSRA) by 6 December 2011, MAA Holdings will use part of the sale proceeds from the disposal of MAA Assurance and 4 other subsidiaries (Identified Subsidiaries) to Zurich Insurance Company Ltd (Zurich Insurance). On 20 June 2011, MAA Holdings entered into a conditional sale and purchase agreement with Zurich Insurance to dispose of the Identified Subsidiaries for RM344 million cash (subject to revision) (Proposed Disposal). Pending the approval of MAA Holdings’ shareholders and the fulfilment of the necessary conditions, the Proposed Disposal is expected to be completed by end-September 2011. To meet the requirements of the RBC framework, Zurich Insurance is expected to recapitalise MAA Assurance upon acquisition.

The rating outlook may be reverted to stable if the sale of the Identified Subsidiaries can be completed well before 6 December 2011, when MAA Holdings will be required to deposit the final MTN repayment of RM140 million into the DSRA. On the other hand, the Group’s ratings will face further downward pressure if the sale of the Identified Subsidiaries is delayed or falls through.

Media contact
Shireen Ng
(603) 7628 1021
shireen@ram.com.my