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Tuesday, September 2, 2014
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RAM Ratings has reaffirmed the A2/stable/P1 claims-paying ability ratings of Pacific & Orient Insurance Co Berhad (P&O Insurance or the Company).
Published on 29 August 2014
RAM Ratings has reaffirmed
the A2/stable/P1 claims-paying ability ratings of Pacific & Orient
Insurance Co Berhad (P&O Insurance or the Company). Concurrently, we have
reaffirmed the A3/stable rating of the Company’s Subordinated Notes Programme
of up to RM150 million. The reaffirmation of the ratings is premised on P&O
Insurance’s sound financial performance, healthy reserve adequacy and
capitalisation as well as conservative risk appetite. P&O Insurance is the leading motorcycle insurer in Malaysia, with a 50% share of the segment’s gross premiums. The Company has exhibited relatively stable operating profits despite tepid topline growth, consistent with its strategy to focus on profitability over growth. P&O Insurance has been paring down loss-making lines such as commercial-vehicle policies, along with imposing maximum loading on covers, which has sustained its bottom line. Its underwriting margin improved from 11.4% to 12.6% in FY Sep 2013, while its combined ratio has remained below 90%, averaging 87.5% over the past 5 years (industry average: 89.6%). The Company has a strong ability to meet its insurance and financial liabilities, as illustrated by its reserve adequacy ratio of 157.9% in fiscal 2013 and capital-adequacy ratio (CAR) of 237.5% as at end-March 2014, which is well above the regulatory minimum of 130% and its internal CAR.
P&O Insurance’s ratings are constrained by its modest size and concentrated portfolio. The Company is relatively more susceptible to adverse developments in the motor segment such as the acute losses made by the Malaysia Motor Insurance Pool (MMIP) – a pool set up to underwrite unplaced risks, with all general insurers equally sharing its profits and losses. We note that the MMIP’s losses could crimp as much as 10% of the Company’s pre-tax profits.
Significant sustained improvement in the Company’s size and overall financial metrics, including a combined ratio below 90%, as well as a solid capital position, could lend support to a rating upside. Conversely, a persistent deterioration of the Company’s CAR to below 200% and the weakening of its reserves adequacy would be credit negatives. A notable loss of market share that would impinge on profitability or aggressive expansion into high-risk lines would also be rating concerns; albeit quite unlikely.
Siew Shwu Ying
(603) 7628 1071
shwuying@ram.com.my
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