Published on 23 August 2013
RAM Ratings has reaffirmed
Pacific & Orient Insurance Co Berhad’s (“P&O Insurance” or “the
Company”) respective long- and short-term claims-paying ability ratings of A2
and P1. Concurrently, we have also reaffirmed the long-term A3 rating for the
Company’s Subordinated Notes Programme (“Sub Notes Programme”) of up to RM150
million. Both long-term ratings have a stable outlook.
P&O Insurance is the top
motorcycle insurer in Malaysia, commanding more than 50% of the market’s
comprehensive and third-party covers. Nevertheless, with RM530.3 million
of gross earned premiums in FYE September 2012, it is still of modest stature,
accounting for 3.5% of the overall general insurance segment in 2012 (2011:
3.7%).
The Company’s strong
relationships with its extensive network of agents, disciplined underwriting
and risk management, as well as higher loading have facilitated consistently
broader underwriting margins relative to its peers. For the past 5 years,
P&O Insurance registered a healthy average pre-tax return on assets of 7.5%
and a combined ratio of 90.0%. Nevertheless, the Company’s pre-tax profit
declined in fiscal 2012 following the commutation of its loss portfolio
transfer arrangement with Asia Capital Reinsurance Malaysia. Going forward, RAM
expects P&O Insurance’s claims experience and profitability to remain
healthy.
We note that P&O Insurance
remained well capitalised with a regulatory capital-adequacy ratio of 208.6% as
at end-June 2013, well above the regulatory minimum of 130%. It had maintained
its superior reserve adequacy against its insurance liabilities. Likewise, the
bulk of the Company’s invested assets remained very liquid, with more than 90%
comprising cash and deposits. Coverage against its financial commitments,
including the Sub Notes Programme, came up to a sound 14.1 times as at
end-March 2013.
In May 2013, holding company
Pacific & Orient Berhad divested 49% of its interest in P&O Insurance
to a unit of Sanlam Limited, one of South Africa’s largest financial-services
group. RAM understands that there will be no significant change in the
strategic direction of P&O Insurance at this juncture, although potential
diversification cannot be precluded.
In the meantime, the Company’s
rating is moderated by, among others, its concentrated portfolio and modest
size, which could subject P&O Insurance to greater volatility from adverse
developments in the claims arena. However, significant sustained improvement in
its overall performance metrics, market share and capital adequacy could lend
support to a rating upside. Conversely, persistent deterioration in these areas
could result in downward rating pressure.
Media contact
Siew Shwu Ying
(603) 7628 1071
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