RAM Ratings has reaffirmed the AAA/Stable/P1 claims-paying ability ratings of Etiqa Takaful Berhad (ETB or the Takaful Operator).

Published on 27 May 2016

RAM Ratings has reaffirmed the AAA/Stable/P1 claims-paying ability ratings of Etiqa Takaful Berhad (ETB or the Takaful Operator). Concurrently, we have reaffirmed the AA1/Stable rating of its RM300 million Subordinated Sukuk Musharakah.

ETB has retained its leading position in the Malaysian takaful industry, underpinned by its extensive distribution capabilities and strong brand recognition as the takaful arm of Malayan Banking Berhad (Maybank, rated AAA/Stable/P1). ETB operates under the brand name “Etiqa” which it shares with its sister company, Etiqa Insurance Berhad (EIB, rated AAA/Stable/P1). The entities also have a common senior management team. The ratings consider the strong operational support and financial flexibility that ETB derives from its parent, Maybank Ageas Holdings Berhad.

In FY Dec 2015, ETB’s gross contributions rebounded 8% to RM2.4 billion, driven by an uptick in its family takaful credit business. The Takaful Operator’s consolidated pre-tax profit, however, declined 11.5% to RM249.2 million on account of lower investment returns and higher claims and benefits incurred. To some extent, the overall commissions and management expenses ratio had moderated the drop in pre-tax profit. Nevertheless, ETB’s consolidated pre-tax profit margin and ROA of 11.1% and 2.0%, respectively, stayed favourable against its takaful peers. 

While ETB’s family takaful new business recovered in fiscal 2015, the bulk of the new business is still sourced from single-contribution credit products – a less sustainable revenue stream. The Takaful Operator’s shift to regular-contribution policies will help stabilise earnings in the future, although meaningful traction could take time.

In spite of favourable topline growth in its general takaful business, ETB’s underwriting profit contracted 33% to RM88.7 million as a result of higher motor claims and increased wakalah fees. The Takaful Operator’s exposure to the Motor Act segment’s steeper claims stayed high, given its concentration in the motor class. Consequently, the combined ratio worsened to 91.3% in FY Dec 2015 (FY Dec 2014: 84.6%), resulting in lower profit sharing. While a higher wakalah fee deduction reduced the general takaful risk fund’s underwriting surplus, the increase in fee income of the shareholders’ fund outweighed the expenses, leading to the latter registering an improved pre-tax profit before surplus transfer.

ETB’s capitalisation continues to strengthen, reinforced by its consistent earnings generation capacity and capital retention policies. As at end-December 2015, its regulatory capital-adequacy ratio (CAR) improved to above 160%. ETB’s shareholders’ fund remained strong and is well-positioned to support some undercapitalised sub-funds, if required. Elsewhere, ETB’s general takaful fund remained adequately reserved against future liabilities, with a net technical reserves ratio of 128.3% as at end-December 2015.

Media contact
Siew Shwu Ying
(603) 7628 1071
shwuying@ram.com.my