TEXT-Fitch ups Singapore's EQ Insurance to IFS 'BBB+'

Mon Dec 17, 2012 2:42am EST

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(The following statement was released by the rating agency)

Dec 17 - Fitch Ratings has upgraded Singapore-based EQ Insurance Co Ltd's (EQI) Insurer Financial Strength (IFS) rating to 'BBB+' from 'BBB'. The Outlook is Stable.

The upgrade reflects EQI's improved financial performance, solid capitalisation commensurate with business portfolio, and prudent investment mix with manageable investment risks.

EQI sources almost 100% of its business from the Singaporean market which, unlike other Asian markets, is largely free from natural catastrophes. The company continues to deliver strong operating performance. Based on the financial results for the first nine months of 2012, its annualised pre-tax return on assets improved to about 5%, from 4.4% in 2011. Its combined ratio fell below 80% compared to 93% in 2011. Fitch views EQI's investment strategy as conservative, with more than 80% of its funds residing in cash and fixed deposits as well as in fixed income instruments.

The company maintains a strong capital buffer commensurate with its business profile. It received a capital injection of SGD5m during 2011 to better support its business growth. As a result, its paid-up capital more than doubled from the initial SGD12.5m when it commenced underwriting to SGD30m. EQI's regulatory risk-based capital (RBC) ratio has consistently been above 200% and was at 215% as at end-September 2012. Capital quality is sound, comprising entirely equity capital and retained earnings, with no financial leverage.

On the other hand, EQI faces continuing challenges of building its franchise and gaining market recognition in the competitive Singaporean market. Fitch expects the company to continue to adopt a prudent underwriting approach and maintain healthy financial fundamentals as the business expands.

Upgrade of EQI in the near-term is unlikely. On the other hand, key rating drivers for a downgrade include a significant weakening of its credit profile, with net premiums written to equity being consistently higher than 2.5x (9M12: 1x), risky assets (including speculative-grade bonds, unaffiliated common stock and investments in affiliates) to total shareholders' funds above 70% (9M12: 31%), and sustained operating losses with a combined ratio above 103% for an extended period.

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