Tuesday, May 16, 2000
MARC has affirmed the general insurance financial strength rating of Kurnia Insurans (Malaysia) Berhad (Kurnia) at A (Single A) based on the company’s leading market position, strong agency network, conservative investment strategy, tight premium accountability and stringent claims controls. A moderating factor is the high vulnerability of the motor business to adverse developments in the economy.
Kurnia is the largest general and motor insurer in the country with a 10.9% market share of total net premiums and 17.6% of motor net premiums based on its FY98 financials. The company underwrites predominantly motor business, which accounts for over 90% of premiums. Kurnia has carved a niche in motor underwriting and its leadership position is supported by a strong agency force, a tight premium accountability system and aggressive claims control initiatives. Although the number of motor policies written rose by 26%, net premium growth was moderated by the shifting preference towards third party policies and the lower sums insured under comprehensive covers. This appears to be an industry-wide trend arising out of the recent economic downturn. Underwriting profitability is expected to weaken in the medium term with the higher composition of third party covers in recent years.
Kurnia plans to reduce the motor weightage in its underwriting book to 70% over the longer term. Bancassurance arrangements are currently being pursued with certain financial institutions to penetrate their customer base with Kurnia’s personal line products. In addition, the company has established a separate division to concentrate on building its non-motor business. MARC believes the diversification of its underwriting book will be an important step towards a more stable earnings profile.
Profit after tax of RM168.3 million in FY99 was the highest ever recorded by Kurnia. Profitability was boosted by a capital gain of RM46.3 million realized on the disposal of equity investments. Underwriting performance, though still profitable, declined for the second consecutive year. A major factor behind the decline was the higher expense ratio as net commissions and management expenses continued on an upward trend. The loss ratio edged up to 54.7% (FY98:53.8%), but remained respectable by industry standards due to the company’s stringent claims controls. Taking advantage of the tax free year, the company declared an aggressive dividend rate of 150% totalling RM150 million; or 89% of the FY99 after tax profit.
Kurnia’s balance sheet continues to be highly liquid, with cash, fixed deposits and government securities comprising 95% of total assets as at end FY99. A repositioning of the portfolio has been undertaken in the current fiscal year in light of the prevailing low interest rate environment. The equity and corporate bond composition of invested assets is estimated to have risen to 14% and 8% respectively in a move to enhance the returns from investments. These investment levels are still considered as manageable given the company’s prudent investment strategy.
Underwriting and total cash flow ratios are strong, averaging 167% and 155% respectively over the past five years. Kurnia’s liquidity position is also supported by effective credit controls as evidenced by the modest ratio of outstanding premiums and agents balances to gross direct premium of 5.8%. Total liquid assets as at end June 1999 comfortably covered technical reserves by a factor of 1.2 times, but the ratio is expected to decline as the company plans to pay for its strategic acquisitions with internally generated funds.
Capitalization is acceptable having regard to the risks inherent in the motor business and the company’s conservative investment strategy. Operating leverage showed significant improvement from 5.0 times in FY95 to 2.4 times currently as capital was gradually strengthened through retained earnings. In August 1999, Kurnia’s paid-up capital was raised to RM150 million via the capitalization of retained profit.
Kurnia is the largest general and motor insurer in the country with a 10.9% market share of total net premiums and 17.6% of motor net premiums based on its FY98 financials. The company underwrites predominantly motor business, which accounts for over 90% of premiums. Kurnia has carved a niche in motor underwriting and its leadership position is supported by a strong agency force, a tight premium accountability system and aggressive claims control initiatives. Although the number of motor policies written rose by 26%, net premium growth was moderated by the shifting preference towards third party policies and the lower sums insured under comprehensive covers. This appears to be an industry-wide trend arising out of the recent economic downturn. Underwriting profitability is expected to weaken in the medium term with the higher composition of third party covers in recent years.
Kurnia plans to reduce the motor weightage in its underwriting book to 70% over the longer term. Bancassurance arrangements are currently being pursued with certain financial institutions to penetrate their customer base with Kurnia’s personal line products. In addition, the company has established a separate division to concentrate on building its non-motor business. MARC believes the diversification of its underwriting book will be an important step towards a more stable earnings profile.
Profit after tax of RM168.3 million in FY99 was the highest ever recorded by Kurnia. Profitability was boosted by a capital gain of RM46.3 million realized on the disposal of equity investments. Underwriting performance, though still profitable, declined for the second consecutive year. A major factor behind the decline was the higher expense ratio as net commissions and management expenses continued on an upward trend. The loss ratio edged up to 54.7% (FY98:53.8%), but remained respectable by industry standards due to the company’s stringent claims controls. Taking advantage of the tax free year, the company declared an aggressive dividend rate of 150% totalling RM150 million; or 89% of the FY99 after tax profit.
Kurnia’s balance sheet continues to be highly liquid, with cash, fixed deposits and government securities comprising 95% of total assets as at end FY99. A repositioning of the portfolio has been undertaken in the current fiscal year in light of the prevailing low interest rate environment. The equity and corporate bond composition of invested assets is estimated to have risen to 14% and 8% respectively in a move to enhance the returns from investments. These investment levels are still considered as manageable given the company’s prudent investment strategy.
Underwriting and total cash flow ratios are strong, averaging 167% and 155% respectively over the past five years. Kurnia’s liquidity position is also supported by effective credit controls as evidenced by the modest ratio of outstanding premiums and agents balances to gross direct premium of 5.8%. Total liquid assets as at end June 1999 comfortably covered technical reserves by a factor of 1.2 times, but the ratio is expected to decline as the company plans to pay for its strategic acquisitions with internally generated funds.
Capitalization is acceptable having regard to the risks inherent in the motor business and the company’s conservative investment strategy. Operating leverage showed significant improvement from 5.0 times in FY95 to 2.4 times currently as capital was gradually strengthened through retained earnings. In August 1999, Kurnia’s paid-up capital was raised to RM150 million via the capitalization of retained profit.