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
shwuying@ram.com.my
Siew Shwu Ying
(603) 7628 1071
shwuying@ram.com.my
Media
contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my
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