Published on 19 Jun 2020.
RAM Ratings has downgraded Tune Protect Group Berhad’s (the Group) long-term corporate credit rating to A2 from A1, and revised the outlook on the rating to negative from stable. The Group’s short-term rating has been reaffirmed at P1. The revision is premised on our expectation that the economic disruption and substantial air travel restrictions stemming from the Covid-19 pandemic will pose significant challenges to the Group’s business and financial profiles over the next 12-18 months. The Group’s underwriting performance had already been on a sustained downward trend in the last four years prior to the pandemic, owing to the tough business environment. Given its business concentration in the travel insurance segment and as the captive insurer of the AirAsia group of companies’ (AirAsia) travel insurance business, the Group’s earnings will be greatly affected by the current depressed demand for air travel. As economic activity is anticipated to contract sharply in 2020, the recovery of air travel demand remains highly uncertain amid ongoing social distancing restrictions and shutdown of borders.
In 1Q FY Dec 2020, Tune Protect Group’s gross premiums slipped 4% to RM113.2 mil (1Q FY Dec 2019: RM117.7 mil), as premiums from travel insurance declined amid the emergence of Covid-19 and the subsequent implementation of the Movement Control Order, effective 18 March 2020. The Group’s motor insurance business had also declined due to rebalancing efforts. As its travel insurance business contributes the bulk of the Group’s underwriting profit, the reduction in premiums from this segment had caused a sharp 77% y-o-y drop in the quarter’s underwriting profit (RM2.7 mil) – an early indication of the impact of the health crisis (1Q FY Dec 2019: RM11.7 mil). Further, Tune Protect Group’s pre-tax profit fell markedly to RM3.6 mil (1Q FY Dec 2019: RM22.3 mil) as it recorded unrealised investment losses during the period.
The Group’s claims ratio was a higher 39% in 1Q FY Dec 2020 (1Q FY Dec 2019: 30%), attributable to lower net earned premiums and higher reserving for future claims. Still-high management expenses kept its combined ratio elevated at 95%. Meanwhile, Tune Protect Group’s investment strategy stayed conservative, with a larger allocation to fixed income securities, while its liquidity profile remained strong with liquid assets at 1.8 times the Group’s net insurance contract liabilities as at end-March 2020. Tune Protect Group's subsidiaries’ capital position remain strong, above the regulatory requirements. The Group itself is currently not subject to any capital requirements.
Hafiz Abdul Aziz
(603) 3385 2534
(603) 3385 2577
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Ratings on Tune Protect Group Berhad