Thursday, Oct 30, 2003
MARC has upgraded the general insurance financial strength rating of Lonpac Insurance Berhad (Lonpac) from AA- (double AA minus) to AA (double AA flat) based on the insurer’s stable management style, a diversified premium base, its strategic link with the Public Bank group, a comparably conservative investment portfolio, manageable liquidity and sound capitalization base. These strengths are, however, moderated by the unfavourable loss experience in the motor underwriting segment and a continued moderate investment performance.
Lonpac is a medium-sized player, ranking 13th and 14th by gross and net premiums respectively with an overall market share of approximately 2.72% of industry gross direct premium. The stability of Lonpac’s operating performance reflects the management’s operational focus on underwriting profitability, claims control and expense efficiencies. The Company continues to maintain a well spread book, with motor, fire and workers’ compensation as core lines. MARC believes its proportional strength in the fire market is an important differentiator for Lonpac in the local general insurance industry. Lonpac’s substantial underwriting experience in fire risks has enabled it to maintain profitability in this core line. The Company has also been successful in improving its cost base compared to its peers, charting an average expense ratio of 27.5% in the past five years against the industry’s 32.3%. Nevertheless, Lonpac continues to endure higher than industry losses in the motor segment for the third consecutive year, a dampener to its underwriting performance. MARC expects the Company’s near-term underwriting to record further growth albeit at a slower rate while investment performance is expected to mirror market conditions.
Capitalizing on its affiliation to the Public Bank group, 34.4% of Lonpac’s premiums were gained through this channel. Albeit not large, the affiliation nonetheless showed the dependence of Lonpac on the Public Bank group as a source of distribution.
Liquidity remains manageable, underpinned by conservative investment strategy and manageable claims level. Furthermore, Lonpac is conservatively capitalized relative to its insurance and investment risks, supported by technical reserves which stood at 1.3 times net written premium in FY2002. Nevertheless, compared to the industry, Lonpac has historically higher reinsurance utilization in managing its underwriting exposure. This is somewhat mitigated by the Company’s careful selection of reinsurers.
Lonpac is a medium-sized player, ranking 13th and 14th by gross and net premiums respectively with an overall market share of approximately 2.72% of industry gross direct premium. The stability of Lonpac’s operating performance reflects the management’s operational focus on underwriting profitability, claims control and expense efficiencies. The Company continues to maintain a well spread book, with motor, fire and workers’ compensation as core lines. MARC believes its proportional strength in the fire market is an important differentiator for Lonpac in the local general insurance industry. Lonpac’s substantial underwriting experience in fire risks has enabled it to maintain profitability in this core line. The Company has also been successful in improving its cost base compared to its peers, charting an average expense ratio of 27.5% in the past five years against the industry’s 32.3%. Nevertheless, Lonpac continues to endure higher than industry losses in the motor segment for the third consecutive year, a dampener to its underwriting performance. MARC expects the Company’s near-term underwriting to record further growth albeit at a slower rate while investment performance is expected to mirror market conditions.
Capitalizing on its affiliation to the Public Bank group, 34.4% of Lonpac’s premiums were gained through this channel. Albeit not large, the affiliation nonetheless showed the dependence of Lonpac on the Public Bank group as a source of distribution.
Liquidity remains manageable, underpinned by conservative investment strategy and manageable claims level. Furthermore, Lonpac is conservatively capitalized relative to its insurance and investment risks, supported by technical reserves which stood at 1.3 times net written premium in FY2002. Nevertheless, compared to the industry, Lonpac has historically higher reinsurance utilization in managing its underwriting exposure. This is somewhat mitigated by the Company’s careful selection of reinsurers.