KUCHING: RAM Ratings Bhd (RAM) has assigned a final long-term rating of AA1 to Etiqa Insurance Bhd’s (Etiqa) proposed subordinated bonds of up to RM500 million.
Concurrently, Etiqa’s respective long and short-term claims-paying ability ratings have been reaffirmed at AAA and P1, Ram siad in a statement yesterday. Both long-term ratings had a stable outlook.
Etiqa is a wholly owned subsidiary of Maybank Ageas Holdings Bhd, an insurance and takaful holding company established via a collaboration between Malayan Banking Bhd (Maybank) and Ageas Insurance International NV.
As a member of Malaysia’s largest banking group, Etiqa derived a significant competitive advantage from Maybank’s vast distribution network and established franchise. The company ranked among Malaysia’s leading life and general insurers, it added.
Etiqa enjoyed robust capitalisation, with a regulatory capital-adequacy ratio (CAR) of 225 per cent as at end-December 2012 – well above the regulatory minimum of 130 per cent according to RAM. The CAR was expected to exceed 250 per cent after the bond issuance.
Underpinned by its well-diversified product portfolio, prudent underwriting standards and low costs, Etiqa exhibits a favourable profit track record. It reported a strong consolidated three-year average pre-tax operating margin of 26.1 per cent and a return on assets of 3.4 per cent.
Etiqa’s prudent capital management was reinforced by the conservative management of its insurance risks and boasted a superior level of adequacy on reserves for its general insurance liabilities, RAM noted. It had a favourable liquidity position. Likewise, Etiqa maintained a conservative investment portfolio that was dominated by low-risk fixed-income securities. This was complemented by a well-structured and sound risk-management framework, RAM added.
RAM also noted that the prevailing environment of low interest rates, if prolonged, might weigh on insurers’ investment returns and could encourage greater risk taking to maintain profitability, especially for general insurance underwriting.
That said, it believed that Etiqa’s ability to manage these challenges was fortified by its strong balance sheet, leading market position and conservative risk management.