The re-affirmed AA insurer financial rating of Lonpac Insurance Berhad (Lonpac) reflects the company’s record of underwriting discipline, its excellent liquidity and prudent capital management. The rating also factors Lonpac’s continued strategic emphasis on underwriting discipline and improving product diversity. Lonpac’s recent initiatives to broaden its product and distribution platform are expected to translate into significant top and bottom line growth, supplemented by continued development of cross-selling opportunities within Public Bank group.

Improving prospective underwriting performance – Lonpac’s results for the first half of 2005 benefited from a sustained improvement in core underwriting results, which was both a result of premium growth and an improved claims experience. The company announced an unaudited underwriting profit of RM20.2 million for the six months ended June 30, 2005 (RM27.5 million for the whole of 2004). Despite positive short-term trends, the scenario ahead looks more challenging. Continuing inflationary pressures, softening premium rates in selected lines and low investment yields could all affect the sector’s performance. Going forward, pricing discipline as well as proactive and conservative financial measures will be primary determinants as to the sustainability of underwriting profitability and operating performance.

Excellent investment quality and liquidity - Lonpac’s investment portfolio is prudently managed to provide both adequate and accessible funds to respond to claims payment needs. The low equity and bond content of Lonpac’s investment portfolio corresponds to the uncertain interest rate outlook for coming quarters as well as a lackluster equity market. Cash and fixed deposits comprised 60% of Lonpac’s invested assets. Lonpac’s cash flow measures continue to indicate a strong ability to meet current obligations through the internal generation of funds from insurance operations.

Prudent capital management – Lonpac maintains prudent levels of underwriting and asset leverage. Lonpac avoids undue underwriting leverage by pursuing a balanced mix and spread of business between classes of business and by complying with underwriting guidelines and limits, exercising conservatism in its estimation of claims provisions, and maintaining the quality of its reinsurance programme. Asset leverage which measures the exposure of the company’s investment portfolio to investment and interest rate risks continues to be maintained at modest levels. MARC expects the trend toward higher utilization of capacity (in line with premium growth) to continue. In the near term, the capital position of Lonpac is sufficient to fund current growth initiatives. Nonetheless, changing regulatory requirements in terms of risk-based capital (RBC) and claims reserving are expected to pose some challenges for insurers like Lonpac in addition to intensifying their appreciation of risk.