Kurnia Insurans (Malaysia) Berhad’s (Kurnia) financial strength rating has been reaffirmed at A+ to reflect the Company’s expanding share of the local general insurance market; its ability to maintain its leadership position in the motor insurance segment and the realization of its premium growth target. However, Kurnia’s high business concentration on motor insurance continues to be a moderating factor given the segment’s increasingly challenging operating environment.

Expanding local market share - In 2004/2005, Kurnia increased its market share to 14.50% (2003/2004: 13.9%) and 23.9% (2003/2004: 23.6%) of the industry’s total net premiums and motor net premiums respectively, maintaining its position as the largest general and motor insurer in the country. This is in line with its goal of achieving a 30% share of the local general insurance market by 2010.

Improved business operations - Kurnia’s overall underwriting profit increased substantially (by 415.3% to RM159.5) owing to increased earned premium income and a smaller increase in unearned premium reserve. The increase in earned premium income led to a marked improvement in overall claims ratio to 59.0% (FY2004: 68.0%). Total shareholders’ funds increased considerably by 19.1% to RM491.4 million due to higher net profits during the year.

Realization of premium growth target – Kurnia was the first general insurer in the ASEAN region to surpass the RM1.0 billion gross premium mark. It has now outdone this previous feat by exceeding its RM1.16 billion target for FY2005 to RM 1.19 billion. Arising from this achievement, Kurnia’s holding company Kurnia Asia Berhad (KAB), declared and paid an interim dividend of 36.1% in September 2005 which translated into a net dividend of 6.5 sen per share, exceeding its commitment (as stated in its prospectus) of 4.0 sen per share by 2.5 sen.

Challenging outlook – The near-term outlook remains challenging as the motor insurance business shows signs of softening with continuing inflationary pressure, rising interest rates and high fuel prices. Also a concern is the rising trend in the average claim size for compulsory motor insurance (motor ‘Act’) policies which cover third party death and bodily injury. Third party policies constitute 59.4% of Kurnia’s motor policies. Kurnia’s 1st half results for FY2006 reflects the tougher operating environment as evidenced by a 14.4% drop in net profit on the back of a 25.7% decrease in net investment and other income and a marginal decrease in gross premium income (-4.8%). On the upside, rising interest rates should have a positive effect on Kurnia’s investment earnings given its high level of cash and deposits. Furthermore, the newly unveiled National Automotive Policy may provide the needed boost to vehicle sales should the overall reduction in effective tax rates for most vehicles translate into cheaper car prices.