Published on 05 May 2015
RAM Ratings has reaffirmed the AAA/Stable/P1
claims-paying ability ratings of Etiqa Insurance Berhad (EIB or the
Insurer). Concurrently, we have reaffirmed the AA1/Stable rating of its
RM500 million Subordinated Bonds. The reaffirmation reflects EIB’s
healthy financial metrics, supported by a rebound in new business income
during the year in review, distribution synergies with its ultimate
parent – Malayan Banking Berhad (Maybank, rated AAA/Stable/P1) – and
robust capitalisation.
EIB retained its position among the top 5 insurers in
the life and general insurance segments, with a respective 8.0% market
share (by gross premiums), underpinned by steady bancassurance business
from Maybank, Malaysia’s largest banking group with more than 400
branches nationwide. The Insurer has a consistent performance track
record – its FY Dec 2014 consolidated pre-tax profit margin of 27.0% and
ROA of 3.3% compared favourably against peers. During the year, gross
premiums expanded 12.6% (industry: 10.6%), attributable to strong new
business growth, while pre-tax profit rose 6.2% to RM481.1 million.
Improved underwriting and claims management also reinforced earnings.
EIB’s overall motor claims – historically higher than the industry
average – improved significantly in FY Dec 2014, declining to 79.5%
(from 92.1% the previous year). This led to a more favourable combined
ratio of 90.8%. Meanwhile, the spurt in new business premiums was
underpinned by single-premium products – an earnings source that RAM
views as less sustainable. Although management continues to make
concerted efforts to grow regular premiums, full traction could take
time.
The Insurer’s risk management remains strong, with
prudent reserving practices and appropriate reinsurance in place. It
continues to maintain a conservative investment portfolio. EIB’s
capital-adequacy ratio (CAR) was robust at 262% as at end-December 2014,
affording a comfortable buffer against any adverse development in
insurance liabilities, and adequately supports the Insurer’s growth
going forward.
Factors that could trigger downward rating pressure
include a sustained deterioration in new business growth, significant
investment losses and a combined ratio of more than 105%, especially if
these result in EIB’s CAR significantly weakening to below 200%.
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