Fitch Affirms Etiqa Insurance at IFS 'A'; Outlook Stable

Wed Apr 30, 2014 5:19am EDT

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(The following statement was released by the rating agency) HONG KONG, April 30 (Fitch) Fitch Ratings has affirmed Malaysia-based Etiqa Insurance Berhad's (EIB) Insurer Financial Strength (IFS) rating at 'A' with Stable Outlook. KEY RATING DRIVERS The rating reflects EIB's solid capital strength, favorable underwriting margin, and sound liquidity. The rating also considers the company's extensive distribution coverage and its strategic status as one of the core operating subsidiaries within Maybank Ageas Holdings Berhad (MAHB), a major insurance group in Malaysia. EIB's capitalisation remained strong despite a dividend payout of RM450.2m to MAHB in 2013. Slower premium growth along with the issuance of RM500m of subordinated bonds, which can be recognised as part of Tier 2 capital improved the company's statutory risk-based capital (RBC) ratio from 225% at end-2012 to 282% at end-2013, well in excess of the regulatory minimum of 130%. In view of the company's ongoing surplus growth, Fitch believes that EIB is capable of keeping adequate capital buffer to support its premium expansion. EIB further strengthened the underwriting profitability of its general insurance portfolio in 2013. The company's overall loss ratio decreased to 55.5% in 2013 from 57.6% in 2012 partly due to a reduction in its exposure to motor insurance. Gross written premiums from motor insurance declined by 6.1% in 2013, although it still amounted to about 47.5% of its total net written premiums. The agency believes the underwriting results of EIB's motor insurance portfolio will continue to be constrained by the market-wide adverse claim results of third-party bodily injury and death (TPBID) motor insurance in the near term, notwithstanding permission granted by Bank Negara Malaysia to insurers to make gradual adjustments on motor insurance tariff rates. Nonetheless, Fitch expects EIB's overall underwriting result to remain profitable in the near term, given the company's disciplined underwriting strategy and its initiative to further expand in fire insurance, which is generally more profitable than motor insurance in Malaysia. Given its reinsurance protection, EIB estimates potential claims associated with the disappearance of Malaysia Airlines Flight MH370 is likely to be manageable. Fitch will closely monitor developments in this incident and evaluate its impact on the company's financial position. EIB recorded a 25% drop in gross premiums written from life funds in 2013 as the company put less emphasis on the sales of single premiums policies. Fitch believes that the growth prospects of EIB's life portfolio remain positive in the mid to long term given the company's wide agency network across Malaysia and its bancassurance partnership with Malayan Banking Berhad. The liquidity position of EIB's shareholder and general insurance funds remains strong. Liquid assets (including structured deposits) were about 2.83x the net technical reserves for its general insurance fund at end-2013. With its existing investment approach, the company is likely to maintain good liquidity to support the claims liabilities of its general insurance fund. RATING SENSITIVITIES Key rating triggers that could result in a downgrade include - a decrease in EIB's statutory RBC ratio to below 200% on a sustained basis, - an increase in MAHB's financial leverage on a consolidated basis to more than 30% (end-2013: 10%), - a deterioration in the company's general insurance's underwriting margin with a combined ratio consistently above 105%, or - a sharp decline in lapse rates and mortality profit. An upgrade is unlikely in the near term as EIB's IFS rating is at the same level as Malaysia's Local-Currency IDR of 'A', which is on Negative Outlook. A downgrade of Malaysia's 'A' Local-Currency IDR by more than one notch would likely result in a rating downgrade for EIB's IFS rating. Additionally, evidence of adverse change in EIB's financial metrics due to a rougher operating environment associated with a weakening sovereign rating could also lead Fitch to reassess the one-notch differential between the insurer's rating and the sovereign's Local Currency IDR. Contacts: Primary Analyst Terrence Wong Director +852 2263 9920 Fitch (Hong Kong) Limited 2801, Tower Two, Lippo Centre 89 Queensway, Hong Kong Secondary Analyst Jeffrey Liew Senior Director +852 2263 9920 Committee Chairperson Chris Waterman Managing Director +44 20 3530 1168 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, 'Insurance Rating Methodology', dated 13 November 2013, are available on www.fitchratings.com. Applicable Criteria and Related Research: Insurance Rating Methodology here Additional Disclosure Solicitation Status null/gws/en/disclosure/solicitation?pr_id=828239 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. 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