Friday, Apr 12, 2002
MARC has affirmed the general insurance financial strength rating of Kurnia Insurans (Malaysia) Berhad (Kurnia) at A (single A flat) reflecting the company’s leading market position in the Malaysian market, its strong business franchise particularly in the motor insurance market, its large distribution network and stringent claims controls. Moderating features include a high underwriting concentration in motor lines and increasing investments in shares.
Following the completion of the acquisition of Nusantara Worldwide Insurance (Malaysia) Berhad (NWI) in September 2000, Kurnia inherited the weak quality of NWI’s legacy assets. However, given NWI’s much smaller asset base (only 5% of consolidated assets) and Kurnia’s intention to run-off the majority of the acquired business, the impact on overall earnings will be limited to the goodwill amortization of RM1.7 million per annum over 25 years.
Kurnia is the largest general and motor insurer in the country with a 14.8% market share of total net premiums and 22.9% of motor net premiums. The company underwrites predominantly motor business, which accounts for over 90% of premiums. It has carved a niche in motor underwriting and its leadership position is supported by strategic marketing initiatives, a strong agency force, and lately, a greater focus on customer service. The company’s long term goal is to continue growing market share pursuing motor as its core business line and targeting to capture a 30% market share of the domestic motor insurance business through continued aggressive marketing efforts and tie-ups with car dealers. It however lacks the advantages that are typically derived from being connected with large multinational insurers.
Scale economies and stringent claims control have contributed to Kurnia’s strong underwriting performance. Despite volatility in the company’s earnings, profitability remains respectable with minimum and average return on assets of 7.1% and 15.3% respectively since 1995. The loss ratio of its motor class displayed relative stability and at 57%, remains superior to the industry average of 66%. Underwriting profit rebounded 54% to RM74 million in FY2001 arising from earned premium growth of 27%. On the back of a pick up in motor sales towards the end of 2001 and given Kurnia’s aggressive marketing strategy, MARC expects premium volumes will continue to grow in line with the industry.
Since 1999, Kurnia began repositioning its investment portfolio, diversifying from one which comprised mainly liquid assets to one with higher yielding assets, in response to the low money market returns. Invested assets in the form of shares and corporate debt securities each accounted for 17% of total invested assets respectively. Investment decisions are controlled by the EXCO and its investment criteria is fairly conservative. However, trading of its equity portfolio in the past three years was responsible for wide swings in total investment return.
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 shrunk to RM515 million, which resulted in the coverage declining to 0.6x technical reserves. The deterioration in the ratio is somewhat mitigated by the fairly consistent claims pattern of its liabilities. Kurnia’s liquidity position is also supported by the effective credit controls as evidenced by the modest ratio of outstanding premiums and agents balances representing 6.1% of gross direct premium.
Operating leverage showed significant improvement from 5.0 times in FY95 to 2.3 times currently as capital was gradually strengthened through retained earnings. As at end FY2001, its paid-up capital was double the regulatory requirement of RM200 million, and while shareholders’ funds rose to RM277 million, this was considered marginal relative to its insurance and increased investment risks.
Following the completion of the acquisition of Nusantara Worldwide Insurance (Malaysia) Berhad (NWI) in September 2000, Kurnia inherited the weak quality of NWI’s legacy assets. However, given NWI’s much smaller asset base (only 5% of consolidated assets) and Kurnia’s intention to run-off the majority of the acquired business, the impact on overall earnings will be limited to the goodwill amortization of RM1.7 million per annum over 25 years.
Kurnia is the largest general and motor insurer in the country with a 14.8% market share of total net premiums and 22.9% of motor net premiums. The company underwrites predominantly motor business, which accounts for over 90% of premiums. It has carved a niche in motor underwriting and its leadership position is supported by strategic marketing initiatives, a strong agency force, and lately, a greater focus on customer service. The company’s long term goal is to continue growing market share pursuing motor as its core business line and targeting to capture a 30% market share of the domestic motor insurance business through continued aggressive marketing efforts and tie-ups with car dealers. It however lacks the advantages that are typically derived from being connected with large multinational insurers.
Scale economies and stringent claims control have contributed to Kurnia’s strong underwriting performance. Despite volatility in the company’s earnings, profitability remains respectable with minimum and average return on assets of 7.1% and 15.3% respectively since 1995. The loss ratio of its motor class displayed relative stability and at 57%, remains superior to the industry average of 66%. Underwriting profit rebounded 54% to RM74 million in FY2001 arising from earned premium growth of 27%. On the back of a pick up in motor sales towards the end of 2001 and given Kurnia’s aggressive marketing strategy, MARC expects premium volumes will continue to grow in line with the industry.
Since 1999, Kurnia began repositioning its investment portfolio, diversifying from one which comprised mainly liquid assets to one with higher yielding assets, in response to the low money market returns. Invested assets in the form of shares and corporate debt securities each accounted for 17% of total invested assets respectively. Investment decisions are controlled by the EXCO and its investment criteria is fairly conservative. However, trading of its equity portfolio in the past three years was responsible for wide swings in total investment return.
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 shrunk to RM515 million, which resulted in the coverage declining to 0.6x technical reserves. The deterioration in the ratio is somewhat mitigated by the fairly consistent claims pattern of its liabilities. Kurnia’s liquidity position is also supported by the effective credit controls as evidenced by the modest ratio of outstanding premiums and agents balances representing 6.1% of gross direct premium.
Operating leverage showed significant improvement from 5.0 times in FY95 to 2.3 times currently as capital was gradually strengthened through retained earnings. As at end FY2001, its paid-up capital was double the regulatory requirement of RM200 million, and while shareholders’ funds rose to RM277 million, this was considered marginal relative to its insurance and increased investment risks.