RAM Ratings has reaffirmed Pacific & Orient Insurance Co Berhad’s (P&O Insurance or the Insurer) claims-paying ability ratings of A2/Stable/P1.

Published on 29 August 2016

RAM Ratings has reaffirmed Pacific & Orient Insurance Co Berhad’s (P&O Insurance or the Insurer) claims-paying ability ratings of A2/Stable/P1. Concurrently, the rating of its RM150 million Subordinated Notes Programme (2012/2024) has been reaffirmed at A3/Stable. The ratings reflect P&O Insurance’s healthy underwriting performance, strong capital levels and liquidity position, as well as the Insurer’s position as the dominant motorcycle insurer in Malaysia. That said, P&O Insurance’s modest size and concentrated portfolio continue to moderate its ratings.

P&O Insurance’s motorcycle insurance premiums constituted 32% of the industry’s gross premiums in the segment in fiscal 2015. The Insurer’s competitive advantage stems from its long-established relationships with motorcycle dealers. Nonetheless, keen competition had crimped P&O Insurance’s market share from 43% in 2014 to 32% in 2015. This, coupled with a 3.8% contraction in industry motorcycle premiums, had resulted in a sharp drop in its gross premiums to RM362.6 million in FY Sep 2015 (FY Sep 2014: RM469.6 million). Upcoming liberalisation in July 2017 may cause P&O Insurance’s top line to slide further. Management has initiated measures to arrest falling market share but continues to focus on maintaining underwriting profitability.

P&O Insurance’s underwriting practices remain prudent, although higher claims provisions from more conservative assumptions of a newly appointed actuary in 2015 had skewed its claims experience. While the Insurer’s claims ratio slipped to 73.7% in FY Sep 2015 (FY Sep 2014: 63.7%), the said provisions had been partially reversed in 1H FY Sep 2016. As these reserves continue to be reversed, P&O Insurance’s underwriting margin is expected to normalise to around 11%-13% in FY Sep 2016. Elsewhere, P&O Insurance’s capitalisation stayed strong, with its regulatory capital adequacy ratio standing at 279.0% as at end-March 2016, well above the minimum requirement of 130%.

P&O Insurance’s ratings may improve in the event of significant and sustained growth in its portfolio, as well as meaningful diversification that does not compromise its underwriting margin. Conversely, a continued decline in earned premiums below current levels may put pressure on the ratings. Other rating concerns include a significant weakening of capitalisation and reserves coverage.

Analytical contact                                            Media contact
Loh Kit Yoong                                                    Padthma Subbiah
(603) 7628 1031                                                (603) 7628 1162
kityoong@ram.com.my                                      padthma@ram.com.my