Monday, Dec 27, 2004
The rating reaffirmation reflects the financial strength of the life and general insurance funds 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. Strong operating performance of the life insurance business, extensive distribution channels, healthy growth in investment income for both insurance funds and proactive efforts by management in focusing growth in ordinary life and investment linked products are amongst the positive factors supporting the ratings. These are offset by underwriting losses in the general fund and a relatively aggressive investment strategy compared to industry norms.
Based on Bank Negara Malaysia’s 2003 Annual Report, MAA’s life division ranked fourth in terms of new business premiums for FY2002, reflecting the tough competition it faces from foreign based insurers. However, excluding group policies, MAA ranked ahead of its competitors with 18.0% market share for FY2003. Excluding the annuity business, MAA recorded a 28.6% growth in new business premiums in FY2003 compared to 40.6% in FY2002, reflecting its ability to penetrate the market and meet customer preferences. Its large agency force with a high Bumiputera representation remained as one of the key competitive advantages in securing a sizable market share. The strong growth in new business premiums, higher net investment income (+ 39%) coupled with sizeable writebacks in provision for diminution in value of investments have mainly contributed to the more than three-fold increase in surplus after tax to RM720.3 million (FY2002: RM222.6 million).
MAA is expected to chart favourable growth rates in the short term amidst the popularity of its endowment and investment-linked products. The bulk of the growth in its new business is expected to be contributed by non-participating ordinary life and investment-linked products. Demand for single premium policies, particularly ordinary life policies, is expected to remain strong for FY2004 and FY2005.
MAA’s general division recorded slower growth of 3.3% in FY2003 (FY2002: +20.4%), thus underperforming industry average of 8.5%. Its general business remained concentrated towards the motor business which accounted for 76.5% of total net premiums. The division reported an underwriting loss of RM21.6 million (FY2002: -RM1.4 million), brought about by higher new claims incurred, commissions and management expenses. Claims and expense ratios increased to 74.3% (FY2002: 68.4%) and 31.8% (FY2002: 29.6%) respectively, both higher than the industry average. Nevertheless, the general division reported higher net profits owing to sizeable writeback in provision for diminution in value of investments and gains on disposal of equities, both of which contributed positively to profitability by RM38.7 million.
The parent holding company displayed higher cash flow coverage ratios owing to higher dividend paid by MAA. The relatively high dividend payout bodes well for bondholders. In addition, the existing RC facility effectively mitigates liquidity risk for the bond issue as principal outstanding progressively reduces over time. Redemption of Tranche A bonds of RM20 million lowered the group and company gearing level to 0.44x and 0.43x respectively. Double leverage ratio was reduced to 1.15x from 1.42x on the back of 23.0% growth in shareholder’ funds of MAAH (company level
Based on Bank Negara Malaysia’s 2003 Annual Report, MAA’s life division ranked fourth in terms of new business premiums for FY2002, reflecting the tough competition it faces from foreign based insurers. However, excluding group policies, MAA ranked ahead of its competitors with 18.0% market share for FY2003. Excluding the annuity business, MAA recorded a 28.6% growth in new business premiums in FY2003 compared to 40.6% in FY2002, reflecting its ability to penetrate the market and meet customer preferences. Its large agency force with a high Bumiputera representation remained as one of the key competitive advantages in securing a sizable market share. The strong growth in new business premiums, higher net investment income (+ 39%) coupled with sizeable writebacks in provision for diminution in value of investments have mainly contributed to the more than three-fold increase in surplus after tax to RM720.3 million (FY2002: RM222.6 million).
MAA is expected to chart favourable growth rates in the short term amidst the popularity of its endowment and investment-linked products. The bulk of the growth in its new business is expected to be contributed by non-participating ordinary life and investment-linked products. Demand for single premium policies, particularly ordinary life policies, is expected to remain strong for FY2004 and FY2005.
MAA’s general division recorded slower growth of 3.3% in FY2003 (FY2002: +20.4%), thus underperforming industry average of 8.5%. Its general business remained concentrated towards the motor business which accounted for 76.5% of total net premiums. The division reported an underwriting loss of RM21.6 million (FY2002: -RM1.4 million), brought about by higher new claims incurred, commissions and management expenses. Claims and expense ratios increased to 74.3% (FY2002: 68.4%) and 31.8% (FY2002: 29.6%) respectively, both higher than the industry average. Nevertheless, the general division reported higher net profits owing to sizeable writeback in provision for diminution in value of investments and gains on disposal of equities, both of which contributed positively to profitability by RM38.7 million.
The parent holding company displayed higher cash flow coverage ratios owing to higher dividend paid by MAA. The relatively high dividend payout bodes well for bondholders. In addition, the existing RC facility effectively mitigates liquidity risk for the bond issue as principal outstanding progressively reduces over time. Redemption of Tranche A bonds of RM20 million lowered the group and company gearing level to 0.44x and 0.43x respectively. Double leverage ratio was reduced to 1.15x from 1.42x on the back of 23.0% growth in shareholder’ funds of MAAH (company level