Thursday, May 25, 2017

RAM Ratings reaffirms Etiqa Insurance’s AAA/Stable/P1 ratings

Published on 25 May 2017.

RAM Ratings has reaffirmed the AAA/Stable/P1 insurer financial strength ratings (IFS) of Etiqa Insurance Berhad (EIB or the Insurer) as well as the AA1/Stable rating of its RM500 million Subordinated Bonds (2013/2023). The Bonds are rated 1 notch below EIB’s long-term IFS rating to reflect the status of the facility as an unsecured and subordinated obligation of the Insurer. 
The ratings reflect EIB’s favourable operating metrics, its robust capitalisation and strong market position in the domestic insurance industry. EIB is a leading composite insurer in Malaysia, with sizeable market shares in both the general and life insurance segments. Its business position benefits from the exclusive bancassurance with its ultimate parent, Malayan Banking Berhad (Maybank), providing the Insurer access to the latter’s extensive network and customer base.  
A corporate exercise is currently underway at EIB, in adherence with Bank Negara Malaysia’s requirement for composite insurers to legally segregate their operations into single-licence companies. Post-segregation, EIB’s balance sheet will shrink, reflecting the respective insurance fund that it will house. However, strategically, we believe the separate businesses will continue to be managed on a group-wide basis by Maybank Ageas Holdings Berhad, EIB’s immediate parent – a 69:31 collaboration between Maybank and Belgian-based Ageas. As such, EIB’s ratings will continue to remain supported by Maybank Ageas Group’s operational strength and synergies. 
Despite a dip in gross premiums, EIB’s overall profits grew 15% to RM444 million in FY Dec 2016  (FY Dec 2015: RM387 million), supported by better investment returns, the healthy growth of its in-force life business and the release of reserves from the Insurer’s general insurance fund. On a consolidated basis, EIB’s pre-tax profit margin and ROA had rebounded to a respective 29.1% and 3.3% in FY Dec 2016 (FY Dec 2015: 25.3% and 2.7%, respectively).
Although a sizeable contribution of single-premium policies subject the Insurer’s life fund revenues to some volatility, its focus on underwriting regular-premium policies has improved its earnings quality. Regular-premium products now make up a larger (56%) portion of EIB’s new business premiums (2013: 26%). This, together with an improving persistency rate, has supported the healthy growth of EIB’s in-force business, which expanded 9% in FY Dec 2016 (FY Dec 2015: +12%).
EIB’s net underwriting margin jumped 24% in fiscal 2016, due to significant reserves release, but going forward, underwriting performance is likely to remain closer to the historical average of sub-10%. The industry’s next phase of motor tariff liberalisation (effective 1 July 2017) may have a significant bearing on EIB’s underwriting performance, given its sizeable motor business line (45% of net earned premiums). While the outcome is uncertain at this juncture, the impact of the exercise is expected to be manageable. 
EIB’s reserve coverage stood at a satisfactory 121% as at end-December 2016 (end-December 2015: 131%). As general insurance reserve releases had contributed to a lower capital requirement for insurance risks, EIB’s capital adequacy ratio had soared to 349% as at the same date (end-December 2015:  283%).

Analytical contact
Siew Shwu Ying
(603) 7628 1071
Media contact
Padthma Subbiah
(603) 7628 1162

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