The rating reaffirmation reflects the overall financial strength of its main subsidiary Malaysian Assurance Alliance Berhad (MAA) and the support provided by the Revolving Credit (RC) Facility to meet coupon and principal payments in the event of a shortfall. Consistent with previous years, MAA Holdings Berhad (MAAH) continues to derive most of its income from dividends upstreamed by MAA. MAA maintains a strong local franchise and market position as one of the country’s leading composite insurer. For both its life and general business, this is underpinned by strong distribution channels, a broad product range and an experienced management team. Partially offsetting these rating strengths is an evident susceptibility of general business earnings to equity-market volatility and a slight rise in consolidated financial leverage.

MAA continues to retain a place in the domestic life sector’s top five in terms of premium income. MAA’s life insurance division recorded an increase of 35.4% in total new business premium for the nine months ended 30 September 2005 compared to the previous year’s corresponding period. MAA continues to develop innovative savings and investment products and make inroads into the Malay community. MAA recorded a net surplus before changes in policy reserve of RM296 million for the nine month period ended 30 September 2005. This was flat relative to the corresponding nine-month period in 2004. The bulk of the growth in its new business is expected to be contributed by non-participating ordinary life and investment-linked products.

Prior to FY2004, the general insurance had written business at an underwriting loss for three consecutive years. MARC views positively management’s objective of making underwriting profits based on controlled premium and expense growth rather than uncontrolled cash flow underwriting going forward. While some progress has been made in stabilizing underwriting performance, current competitive industry conditions, lower investment returns, escalating motor insurance claims and MAA’s high expense base will, however, continue to challenge the division’s ability to improve performance over the longer term.

At MAAH level, the company’s cash flow position improved during the year on the back of a yet higher dividend payout. The relatively high dividend payout continues to support adequate cash flow debt and interest coverage. In addition, the availability of an RC facility to bridge any shortfall in the Debt Service Reserve Account (DSRA) provides incremental liquidity support over time as the bond principal outstanding progressively reduces. A slight rise in consolidated financial leverage to 0.46 times was recorded in the nine-month period ended 30 September 2005 with a rise in short-term borrowings. Any additional material, and diversified investments by MAAH could take the company beyond the business-risk tolerance reflected in the ratings.