Published on 21 Aug 2019.
RAM Ratings has reaffirmed Pacific & Orient Insurance Co. Berhad’s (P&O Insurance or the Insurer) A2/Stable/P1 insurer financial strength ratings as well as the A3/Stable rating of its RM150 million Subordinated Notes Programme (2012/2024). The Subordinated Notes Programme is rated one notch below P&O Insurance’s long-term insurer financial strength rating to reflect its status as an unsecured and subordinated obligation of the Insurer.
The rating reaffirmation considers P&O Insurance’s credit metrics which remain healthy and commensurate with its ratings, notwithstanding a weaker market share. The Insurer’s robust capitalisation and strong reserves coverage also continue to support the ratings, alongside sound risk management practices. Despite intense competition, the Insurer maintains pricing discipline, choosing instead to boost its competitive advantage through brand awareness and building direct channels. All said, P&O Insurance is still a small general insurer in a highly competitive market, with fewer resources for cross- or upselling – its ratings accordingly also reflect this stature.
Larger insurers that have entered the motorcycle insurance market have caused substantial downward shifts in P&O Insurance’s market share and competitive pressures are still prevalent. With a market share of 20% in 2018 (2017:21%), P&O Insurance is the nation’s second-largest motor insurer, closely following its largest rival which commands a 21% share. Although its leadership position has been relinquished, the decline in the Insurer’s motorcycle gross premiums has tapered, levelling off at 3% in FY Sep 2018 (FY Sep 2017: -16%). While non-motor premiums have been growing, this segment will require time to offset revenue loss in the motorcycle segment.
After declining for several years, P&O Insurance’s gross premiums were a slightly higher RM275 mil in FY 2018 (FY 2017: RM274 mil), backed by growth in the motor and non-motor segment. With higher management expenses and weaker investment performance, the Insurer’s pre-tax profit declined 18% to RM38 mil in FY Sep 2018. As significant expense reductions are unlikely, recovery in the Insurer’s business momentum is essential to its underwriting profitability over the long run.
P&O Insurance’s capital management strategies are supportive of capital efficiency and the optimisation of its capital position. Despite sizeable dividend payments, its capital adequacy ratio was a sturdy 303% as at end-March 2019 (end-September 2018: 352%). The Insurer’s portfolio remains well reserved, with a net technical reserves to net earned premiums ratio of 205% as at the same date (end-September 2018: 215%).
Hafiz Abdul Aziz
(603) 3385 2534
(603) 3385 2577
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Published by RAM Rating Services Berhad
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Ratings on Pacific & Orient Insurance Co. Berhad