TEXT-Fitch affirms HSBC Amanah Takaful at IFS 'A-'; outlook stable

Wed Nov 21, 2012 4:18am EST

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Nov 21 - Fitch Ratings has affirmed HSBC Amanah Takaful (Malaysia) Sdn Bhd's (HSBCAT) Insurer Financial Strength (IFS) rating at 'A-' with Stable Outlook.

The rating reflects the important role HSBCAT plays in the insurance franchise of HSBC group. The rating also reflects HSBC group's franchise value, distribution channel and management support. HSBCAT benefits from its parent's widely recognised brand name, product and distribution capabilities, as well as other management resources. HSBC Holdings Plc ('AA'/Negative) has a strong ability and willingness to provide it with continuing support. The rating also incorporates HSBCAT's conservative investment mix, healthy capitalisation, and prudent management.

The rating is constrained by the takaful operator's modest size, limited track record as well as by a competitive and evolving takaful operating environment. Additionally, the company is challenged to manage its expenses effectively as it builds up its business portfolio.

The Stable Outlook reflects Fitch's view that the company is likely to continue to adopt a prudent underwriting approach and maintain healthy financial fundamentals as it expands its business.

HSBCAT was incorporated in 2006 as a composite takaful operator. Takaful is a form of financial protection, similar to insurance. Unlike conventional insurance, Takaful contracts must comply with Islamic principles. Currently, HSBCAT's business portfolio comprises about 85% family takaful business and 15% general takaful business, sourced largely within Malaysia. HSBCAT's key products include retirement protection, homeowner takaful, mortgage life and investment-linked plans.

HSBCAT's financial performance has progressively improved, with a net profit of MYR8.6m in 2011, from MYR8m in 2010 and a loss of MYR11m in 2006. Although HSBCAT's current capitalisation is sound, Fitch cautions that it is important for the operator to maintain its capital level commensurate with its portfolio as it grows its business.

Key rating triggers for an upgrade include HSBCAT's sustained improvement in its operating performance, or an increase in capital relative to business growth. Conversely, key rating triggers for a downgrade are unexpected significant deterioration in its financial performance, with liquid assets to policyholder liabilities falling below 45% and the takaful funds registering net losses for an extended period.

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