Published on 23 Nov 2020.
RAM Ratings has reaffirmed Manulife Holdings Berhad’s (MHB or the Group) AA3/Stable/P1 corporate credit ratings. The rating action reflects our expectation that support from its parent, Manulife Financial Corporation (MFC) will be forthcoming in times of need, given MHB’s importance in the latter’s strategy to continue growing in Asia. The ratings also consider the credit profile of MHB’s core insurance subsidiary, Manulife Insurance Berhad (MIB or the Insurer).
MIB’s credit metrics have remained largely intact, notwithstanding pandemic-triggered headwinds on the growth and earnings fronts this year. We expect the Insurer’s capital buffers to adequately tide it over greater investment volatility and low interest rates in the current operating landscape. While these factors weigh on the solvency positions of life insurers, the impact on capital has been manageable for MIB. This is primarily attributable to MIB’s sizeable proportion of investment-linked plans (ILPs), since the investment risks of these policies are wholly borne by policyholders. ILPs constituted about a third of MIB’s total insurance contract liabilities as at end-June 2020 and still feature prominently in the Insurer’s growth strategy.
MHB bucked a three-year earnings downtrend with a pre-tax profit of RM38.4 mil in FY Dec 2019 (FY Dec 2018: RM38.2 mil), although sustaining the improvement this year will be challenging given tougher operating conditions and resulting investment volatility. Pre-tax profit had almost halved to RM14.9 mil in 1H fiscal 2020 (1H fiscal 2019: RM26.0 mil), which translates into a weak pre-tax annualised return on assets of 0.5% (three-year average: 0.7%).
Dampened new business volumes, seen across the life insurance industry, will affect MIB’s top line – although its agents have adapted to the new norm with virtual meetings. Investment losses (on account of heightened uncertainty) and higher reserving requirements (in view of the low interest rate environment) will also exert pressure on the earnings of life insurers in 2020. To this end, the investment yields of MIB’s par life funds will stay volatile owing to its relatively larger proportion of equity securities vis-à-vis peers in our rated portfolio.
Elsewhere, MIB’s strategic initiatives in 2019 have yielded strong growth and some market share improvement since our last review – its annualised premium equivalent recorded a 1% growth in contrast to the industry’s 21% contraction in 1H 2020. The challenges that MHB faces in scaling up its life insurance and asset management businesses in the competitive domestic market are likely to be compounded by the economic crisis at hand. MIB and Manulife Investment Management (M) Berhad remained small players in both the domestic life insurance and asset management arenas with respective market shares of 3.0% and 2.2% as at end-June 2020.
Loh Kit Yoong
(603) 3385 2493
(603) 3385 2577
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 2020 by RAM Rating Services Berhad
Ratings on Manulife Holdings Berhad