Published on 29 Dec 2020.
RAM Ratings has reaffirmed Hong Leong Assurance’s (HLA or the Insurer) AA2/Stable/P1 insurer financial strength (IFS) ratings. Concurrently, we have reaffirmed the AA3/Stable rating of its RM2.0 billion Subordinated Notes Programme (2020/-) (the Programme). The one notch difference between its long-term IFS rating and the rating of the Programme reflects the latter’s status as unsecured and subordinated obligations of the Insurer.
With close to 10% market share of the industry’s weighted new business (NB) premiums, HLA is the fourth-largest life insurer in Malaysia. Anchored by its agency force and access to the branch network of its sister company- Hong Leong Bank Berhad, the Insurer boasts strong distribution capabilities. Despite the imposition of Movement Control Order that badly disrupted sales in the last fiscal quarter, NB premiums were slightly higher at RM708 mil in FY June 2020 (FY June 2019: RM699 mil).
Regular-premium policies constituted the bulk of them. By product mix, investment-linked (IL) policies accounted for 86% of NB premiums while contribution from participating plans was a mere 3%. Going forward, the Insurer will remain focused on IL policies to drive NB growth given the earnings stability and capital efficiency that they provide.
Owing to the valuation losses on its equity holdings fuelled by market fluctuations since the onset of the pandemic, HLA’s pre-tax profit had decreased to RM185 mil in FY June 2020 (FY June 2019: RM286 mil). Although mark-to-market gains on its bond investments due to the waning yields had helped mitigate some of the income reduction, protracted period of low reinvestment returns will be detrimental to the Insurer’s overall investment yield.
Apart from receiving lower interest income from its bond portfolio, declining interest rates will inflate HLA’s capital charges for its insurance contract liabilities. The Insurer plans to make an imminent issuance of RM300 mil under the Programme and as such, HLA’s capitalisation is expected remain adequate against unfavourable market movements and other economic spillovers of the pandemic.
Meanwhile, HLA’s liquid assets stood at RM13.1 bil or 0.8 times its net insurance contract liabilities as at end-June 2020, providing sufficient buffer to meet any liquidity needs from potential claims.
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Ratings on Hong Leong Assurance Berhad