Published on 15 Nov 2019.
RAM Ratings has reaffirmed the AA3/Stable/P1 corporate credit ratings of Manulife Holdings Berhad (MHB or the Group), an investment holding company with life insurance and asset management businesses in Malaysia. MHB’s ratings are anchored by the credit profile of its core subsidiary Manulife Insurance Berhad (MIB or the Insurer), which benefits from financial flexibility through Manulife Financial Corporation (MFC). The ratings also reflect MHB’s debt-free balance sheet and status as the holding company of a regulated subsidiary.
The Insurer’s new business (NB) premiums had reduced to RM266 mil in FY Dec 2018 (FY Dec 2017: RM308 mil) due to operational challenges which included the transition of key personnel. Consequently, MIB’s gross premiums were a relatively flat RM902 mil, sustained by in-force premiums. Recent senior management appointments and the recruitment of new and experienced agents by end-2018, however, had resulted in an improved performance – MIB’s 1H FY Dec 2019 annual premium equivalent (a measure of weighted NB premiums) was 14% higher. The Insurer has introduced what it calls the “NEXT Manulife” strategy which, among other objectives, is aimed at growing its business and market share, strengthening digital capabilities and enhancing efficiency. That said, MIB remains a small life insurer in Malaysia, with limited distribution capabilities compared to market leaders.
The Group’s FY Dec 2018 pre-tax profit declined to RM38.2 mil (FY Dec 2017: RM41.6 mil) in line with the diminished performance of the insurance segment. This is contributed by weaker NB generation, changes in actuarial assumptions and poor investment performance. However, these was partially offset by favourable MGS interest rate movements. Amidst a volatile capital market, MIB’s investment yield was a low 1.3% in fiscal 2018 (fiscal 2017: 7.8%). This had, however, reversed in 1H FY Dec 2019 with investment returns of 6.0%, supported by unrealised fair-value gains on fixed income and equity investments. Nevertheless, uncertainties will continue to prevail in 2019, given rate cut expectations and slowing growth.
On a positive note, the Group’s asset management arm, Manulife Investment Management (M) Berhad (formerly known as Manulife Asset Management Services Berhad) (MIMMB) registered a maiden profit in FY Dec 2018 as it brought in higher fee income from an expansion of its fund size. MIB is also adequately capitalised, with its capital adequacy ratio strengthened by a RM50 million capital injection in end-September 2019.
MHB’s ratings could be upgraded if the Group’s core life insurance business achieves a sustained improvement in NB generation which translates into a larger scale of operations, without compromising earnings quality, profitability or capitalisation. Conversely, MFC’s reduced propensity to support its Malaysian operations, a sustained and significant deterioration in MIB’s distribution capabilities, or a persistently sluggish investment performance relative to peers may put pressure on the ratings. Unexpected funding needs which result in higher than anticipated leverage at MHB may also be concern.
Hafiz Abdul Aziz
(603) 3385 2534
(603) 3385 2577
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Ratings on Manulife Holdings Berhad