May 6, 2014 / 8:07 AM / 3 years ago

RPT-Fitch Affirms EQ Insurance at 'BBB+'; Outlook Stable

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May 6 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed Singapore-based EQ Insurance Co Ltd’s (EQI) Insurer Financial Strength (IFS) Rating at ‘BBB+'. The Outlook is Stable.


The ratings reflect EQI’s strong capitalisation that is commensurate with its business portfolio, generally prudent underwriting approach, and liquid investment mix. The rating also recognises the continuing challenges that EQI faces in building its franchise, and gaining market recognition amid competitive pressures in Singapore.

EQI sources almost 100% of its business from the Singaporean market, which is largely free from natural catastrophes. Gross premiums rose by 6.7% in 2013 but higher claim experiences led to an overall decline in EQI’s profitability. Net income fell to SGD0.3m in 2013, from SGD4.4m the previous year. Since then, the company has tightened its underwriting discipline and Fitch expects its operating performance will improve. Its combined ratio at end-March 2014 stood at 96%, an improvement from 106% at end-2013. Management forecast that the combined ratio would fall below 95% for 2014.

The company continues to maintain strong capital buffers that are commensurate with its business profile. Its paid-up capital grew steadily from SGD20.0m in 2009 to SGD36.5m in 2013 due to various capital injections from shareholders to support its business growth. EQI’s regulatory risk-based capital (RBC) ratio was 194% in 2013, remaining above the statutory requirement of 120%. Capital quality is sound, comprising entirely equity capital and retained earnings, with no financial leverage.

EQI’s investment mix remained prudent, with cash/fixed deposits and fixed income securities accounting for more than 80% of the total invested assets at end-2013. Its stocks-to-shareholders’ funds ratio is low at 24% in 2013 and consists of good credit quality investments with sustained dividend yield. The company also has a good liquidity position to meet its insurance liabilities as the ratio of liquid assets to the company’s net technical reserves was 174% at end-2013.


Fitch views any upgrade in the ratings on EQI in the near term as unlikely unless there is sustained improvement in its scale of operations and financial fundamentals. Key rating triggers for a downgrade include a significant weakening of its credit profile, with net premiums written to equity being consistently higher than 2.5x (2013: 0.9x), risky assets (including speculative-grade bonds, unaffiliated common stock and investments in affiliates) to total shareholders’ funds above 70% (2013: 24%), and sustained operating losses with a combined ratio above 103% for an extended period.

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