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RAM Ratings reaffirms Tune Protect Re
Published on 27 Jul 2017.
RAM Ratings has reaffirmed the national and ASEAN-scale insurer financial strength ratings of Tune Protect Re Ltd (the Reinsurer) at A1/Stable/P1 and seaA1/Stable/seaP1, respectively. The reaffirmation takes into consideration Tune Protect Re’s continued superior underwriting performance, notwithstanding weaker-than-expected results in 2016. The ratings also reflect the Reinsurer’s adequate reserves and risk management, although moderated by revenue concentration stemming from AirAsia customers.
Tune Protect Re’s business profile is underpinned by its role as the facilitator of Tune Protect Group Berhad’s (the Group, rated A1/Stable/P1 by RAM) online travel insurance business. The Group’s exclusive long-term distribution agreements with AirAsia allow it to access the airline’s passenger base and extensive network, providing the Reinsurer with favourable business prospects as the airline grows.
In August 2016, the Malaysian Aviation Commission introduced new guidelines which prohibit airlines from pre-selecting optional services such as travel insurance to passenger tickets. This had adversely affected the Reinsurer’s take-up rates and caused its gross premiums to contract to RM124 million in FY Dec 2016 (FY Dec 2015: RM129 million) – the first contraction since its incorporation in 2011. Higher claims and management expenses exerted further pressure on its pre-tax profit, which declined 9% to RM60 million in FY Dec 2016. Despite these challenges, Tune Protect Re’s underwriting margin stayed superior at 44%, largely owing to its ability to accurately price policies and estimate losses with AirAsia’s data, as well as the low-claims nature of travel insurance.
Although the near-term growth of the travel insurance business will remain subdued, Tune Protect Re’s credit profile is expected to stay within the thresholds of its ratings. The Reinsurer has adequate reserves against contract liabilities, which are short-tail in nature – its net technical reserves ratio stood at 13.0% as at end-December 2016 (end-December 2015: 13.3%). At the same time, the Reinsurer’s liquidity needs, arising from claims and policyholder liabilities, are amply covered by liquid assets comprising cash and deposits. Tune Protect Re mitigates its exposure to losses from catastrophic events through excess-of-loss treaties with members of Lloyd’s Syndicate rated at least “A” on a global scale.
Although the bulk (86%) of the Reinsurer’s business continues to be derived from AirAsia passengers, efforts to expand its business beyond AirAsia since 2013 have resulted in partnerships with Cebu Pacific Air and Air Arabia. Healthy growth in travel policies issued to Air Arabia customers along with new airline and non-airline partnerships are expected to help the Reinsurer achieve its 20% target premium contribution from other airlines over the next 5 years.
Sustained deterioration in take-up rates resulting in a prolonged contraction in gross premiums could put pressure on the ratings. Any change in the exclusive arrangements between the Group and AirAsia would also warrant a reassessment of the Reinsurer’s ratings. Conversely, sustained growth in premiums and higher-than-expected contributions from other airline partners could lend an upside to the Reinsurer’s ratings, although unlikely in the near term.
Analytical contact
Siew Shwu Ying
(603) 7628 1071
shwuying@ram.com.my
Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.
Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.
Published by RAM Rating Services Berhad
© Copyright 2017 by RAM Rating Services Berhad
