Tuesday, Jun 10, 2003
The ‘A’ general insurance financial strength rating of Kurnia Insurans (Malaysia) Berhad (Kurnia) reflects the Company’s leading market position in the Malaysian general underwriting market, its strong business franchise, large distribution network and stringent claims controls. Moderating features include a high underwriting concentration in motor lines, the somewhat limitations of the Company’s liquidity coverage of technical reserves as well as capitalization’s hold on growth.
Kurnia is the largest general and motor insurer in the country with a 12.8%C market share of total net premiums and 21.7%C of motor net premiums (Bank Negara Malaysia Insurance Annual Report 2001). The Company underwrites predominantly motor business, which accounts for over 95% of premiums. It has carved a niche in motor underwriting and its leadership position is supported by a strong agency force. The Company’s long term goal is to further grow its market share with motor as its core business line.
Scale economies and stringent claims control have contributed to Kurnia’s strong underwriting performance. Profitability remains respectable with minimum and average return on assetsC of 7.1% and 14.8% respectively since 1995. The loss ratio of its motor class displayed relative stability since financial year (FY)1998 and at 60.3%, remains superior to the industry average. On an overall basis, Kurnia’s loss ratio continued to edge marginally higher and while the motor loss ratio remains superior, MARC observed the relatively more volatile marine, aviation and transit (MAT) and fire segments loss ratios. Kurnia’s underwriting performance continued to improve during the year but it is the better investment income (in absolute terms) as well as profit from sale of investments that provided the upward swing to augur in a pre-tax profit of RM152.5 million during the year for Kurnia.
On the back of more cautious motor sales and Kurnia’s aggressive marketing strategy, MARC expects Kurnia’s premium production to only grow in line with the economic changes. Given the heightened competition in the industry and an impending market deregulation, Kurnia’s operating ratioC is not expected to see significant improvement and at best will stabilize at the current range of 80%.
Investment yields have declined since FY2000, reflecting the lower interest rate environment. With Kurnia’s total invested assets hitting in excess of RM1.0 billion in FY2002, the proportionate composition of equity and PDS in Kurnia’s portfolio lowered to 14.8% and 23.8% respectively from 17.0% and 30.4% previously, albeit in absolute terms the exposure to equities actually increased. More significantly, the Company almost doubled its fixed and call deposits in absolute terms, partly in line with its objective to gain reciprocal business from the banks. With interest rate expected to remain low, MARC does not expect Kurnia’s investment yield to move beyond the current level. Whilst the exposure to equities fluctuations increased in absolute terms, the sizeable increase in fixed and call deposits in part mitigates such exposure.
Kurnia’s cash flow position remains solid as reflected by the underwriting and total cash flow ratios which were maintained at comfortable levels despite higher underwriting and operating outflows. Total liquid assets have improved to RM663.9 million, but liquid assets coverage of technical reserves nonetheless only rose a marginal 0.1 times, a testament of Kurnia’s policies on growth and investment yields. The marginal increase in the ratio is somewhat mitigated by the fairly consistent claims pattern of its liabilities as well as the fact that Kurnia’s liabilities are not concentrated on large risks nor those of catastrophic in nature.
Despite the increase in quantum of net written premium as well as investment in equities and properties, Kurnia’s operating and investment leverages eased during the year, benefiting from the strengthened shareholders’ funds, which rose to RM381.9 million during the year. Nonetheless, in light of Kurnia’s underwriting and investment risk profiles, further strengthening of capital base would certainly be viewed favourably.
Kurnia is the largest general and motor insurer in the country with a 12.8%C market share of total net premiums and 21.7%C of motor net premiums (Bank Negara Malaysia Insurance Annual Report 2001). The Company underwrites predominantly motor business, which accounts for over 95% of premiums. It has carved a niche in motor underwriting and its leadership position is supported by a strong agency force. The Company’s long term goal is to further grow its market share with motor as its core business line.
Scale economies and stringent claims control have contributed to Kurnia’s strong underwriting performance. Profitability remains respectable with minimum and average return on assetsC of 7.1% and 14.8% respectively since 1995. The loss ratio of its motor class displayed relative stability since financial year (FY)1998 and at 60.3%, remains superior to the industry average. On an overall basis, Kurnia’s loss ratio continued to edge marginally higher and while the motor loss ratio remains superior, MARC observed the relatively more volatile marine, aviation and transit (MAT) and fire segments loss ratios. Kurnia’s underwriting performance continued to improve during the year but it is the better investment income (in absolute terms) as well as profit from sale of investments that provided the upward swing to augur in a pre-tax profit of RM152.5 million during the year for Kurnia.
On the back of more cautious motor sales and Kurnia’s aggressive marketing strategy, MARC expects Kurnia’s premium production to only grow in line with the economic changes. Given the heightened competition in the industry and an impending market deregulation, Kurnia’s operating ratioC is not expected to see significant improvement and at best will stabilize at the current range of 80%.
Investment yields have declined since FY2000, reflecting the lower interest rate environment. With Kurnia’s total invested assets hitting in excess of RM1.0 billion in FY2002, the proportionate composition of equity and PDS in Kurnia’s portfolio lowered to 14.8% and 23.8% respectively from 17.0% and 30.4% previously, albeit in absolute terms the exposure to equities actually increased. More significantly, the Company almost doubled its fixed and call deposits in absolute terms, partly in line with its objective to gain reciprocal business from the banks. With interest rate expected to remain low, MARC does not expect Kurnia’s investment yield to move beyond the current level. Whilst the exposure to equities fluctuations increased in absolute terms, the sizeable increase in fixed and call deposits in part mitigates such exposure.
Kurnia’s cash flow position remains solid as reflected by the underwriting and total cash flow ratios which were maintained at comfortable levels despite higher underwriting and operating outflows. Total liquid assets have improved to RM663.9 million, but liquid assets coverage of technical reserves nonetheless only rose a marginal 0.1 times, a testament of Kurnia’s policies on growth and investment yields. The marginal increase in the ratio is somewhat mitigated by the fairly consistent claims pattern of its liabilities as well as the fact that Kurnia’s liabilities are not concentrated on large risks nor those of catastrophic in nature.
Despite the increase in quantum of net written premium as well as investment in equities and properties, Kurnia’s operating and investment leverages eased during the year, benefiting from the strengthened shareholders’ funds, which rose to RM381.9 million during the year. Nonetheless, in light of Kurnia’s underwriting and investment risk profiles, further strengthening of capital base would certainly be viewed favourably.