Monday, May 13, 2002
MARC has reaffirmed the insurance financial strength rating of Lonpac Insurance Berhad (Lonpac) at AA- (double A minus) based on the insurer’s well spread book, its strategic links with the Public Bank group, a conservative investment portfolio, strong liquidity and sound capitalization. These strengths are moderated by the unfavourable motor loss ratios in the past two years.
Lonpac is a medium-sized player, ranking 12th and 17th by gross and net premiums respectively with an overall market share of approximately 2.4% of industry net premiums. The company continues to maintain a well spread book, with motor, fire and workers’ compensation as core lines. In the last four years, net premiums grew by a compounded growth rate of 4.2%, which was accompanied by the shift in business from the miscellaneous class to a higher exposure in motor underwriting. In FY2001, Lonpac recorded underwriting surpluses in all insurance classes except for the motor “Act” and liabilities classes of business.
MARC believes its proportional strength in the fire market is an important differentiator for Lonpac in the fairly homogenous local general insurance industry. The company’s substantial underwriting experience in fire risks has enabled it to maintain the profitability of this core line. Supporting premium development is a well-diversified distribution system. The company’s affiliation with the Public Bank group provides a ready captive market and cost-effective access to a large customer base for the distribution of personal insurance products.
The stability of Lonpac’s operating performance reflects management’s operational focus on underwriting profitability, claims control and expense efficiencies. The company, nevertheless, was subjected to escalation in claims following the 1998 economic crisis, mainly due to increased vehicle thefts, burglary and fidelity guarantee claims. Although premiums have since recovered to pre-crisis levels, the underwriting performance remains at 30% below the 1997 peak due to intense competition in the non-tariff classes of business coupled with the deterioration in the company’s loss ratio. MARC expects near-term underwriting profitability to remain relatively flat, given the increased pricing pressures.
Lonpac’s investment strategy remains conservative and its portfolio liquid, with over 68% of invested assets in the form of fixed deposits and government securities. Investment yield, however declined to below 5% in recent years as a result of the low interest rate environment. Lonpac increased its holdings of corporate debt securities in the last three years to enhance investment yield. However, any improvements to the average yield will be minimal given the prevailing low interest rates.
Liquidity remains excellent, underpinned by robust underwriting and total cash flow ratios, which remained comfortably above 115%. Liquid assets coverage of technical reserves has declined over the years but at 1.4 times cover, is still considered ample and facilitates the prompt settlement of claims by the company.
Lonpac is conservatively capitalized relative to insurance risks, as measured by net premiums to capital, at 0.8 times for FY2001. Investment leverage escalated to 31% in FY2001 arising from the increased equity investments during the year, but remains at a manageable level. The company’s capital is supported by technical reserves that have kept pace with net written premium by an average factor of 1.2 times. Reinsurance utilization has been trending down and averaging at 49% in the last five years, with the MAT, CAR and engineering, bond and miscellaneous accidents businesses written with more than 50% protection.
Lonpac is a medium-sized player, ranking 12th and 17th by gross and net premiums respectively with an overall market share of approximately 2.4% of industry net premiums. The company continues to maintain a well spread book, with motor, fire and workers’ compensation as core lines. In the last four years, net premiums grew by a compounded growth rate of 4.2%, which was accompanied by the shift in business from the miscellaneous class to a higher exposure in motor underwriting. In FY2001, Lonpac recorded underwriting surpluses in all insurance classes except for the motor “Act” and liabilities classes of business.
MARC believes its proportional strength in the fire market is an important differentiator for Lonpac in the fairly homogenous local general insurance industry. The company’s substantial underwriting experience in fire risks has enabled it to maintain the profitability of this core line. Supporting premium development is a well-diversified distribution system. The company’s affiliation with the Public Bank group provides a ready captive market and cost-effective access to a large customer base for the distribution of personal insurance products.
The stability of Lonpac’s operating performance reflects management’s operational focus on underwriting profitability, claims control and expense efficiencies. The company, nevertheless, was subjected to escalation in claims following the 1998 economic crisis, mainly due to increased vehicle thefts, burglary and fidelity guarantee claims. Although premiums have since recovered to pre-crisis levels, the underwriting performance remains at 30% below the 1997 peak due to intense competition in the non-tariff classes of business coupled with the deterioration in the company’s loss ratio. MARC expects near-term underwriting profitability to remain relatively flat, given the increased pricing pressures.
Lonpac’s investment strategy remains conservative and its portfolio liquid, with over 68% of invested assets in the form of fixed deposits and government securities. Investment yield, however declined to below 5% in recent years as a result of the low interest rate environment. Lonpac increased its holdings of corporate debt securities in the last three years to enhance investment yield. However, any improvements to the average yield will be minimal given the prevailing low interest rates.
Liquidity remains excellent, underpinned by robust underwriting and total cash flow ratios, which remained comfortably above 115%. Liquid assets coverage of technical reserves has declined over the years but at 1.4 times cover, is still considered ample and facilitates the prompt settlement of claims by the company.
Lonpac is conservatively capitalized relative to insurance risks, as measured by net premiums to capital, at 0.8 times for FY2001. Investment leverage escalated to 31% in FY2001 arising from the increased equity investments during the year, but remains at a manageable level. The company’s capital is supported by technical reserves that have kept pace with net written premium by an average factor of 1.2 times. Reinsurance utilization has been trending down and averaging at 49% in the last five years, with the MAT, CAR and engineering, bond and miscellaneous accidents businesses written with more than 50% protection.