RAM Ratings assigns A3/Negative rating to P&O Insurance’s proposed RM90 mil Subordinated Notes

Published on 29 Oct 2021.

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RAM Ratings has assigned an A3/Negative rating to Pacific & Orient Insurance Co. Berhad’s (P&O Insurance or the Insurer) proposed RM90 mil Subordinated Notes Programme. Concurrently, we have reaffirmed the Insurer’s A2/Negative/P1 insurer financial strength ratings as well as the A3/Negative rating of its existing RM150 million Subordinated Notes Programme (2012/2024). Both programmes are rated one notch below P&O Insurance’s long-term insurer financial strength rating to reflect their status as an unsecured and subordinated obligation of the Insurer.

The negative outlook reflects downside risk on P&O Insurance’s underwriting performance in the near term. Stiff competition from larger peers and the ravaging effects of the prolonged health crisis may derail progress in restoring the Insurer’s financial profile. The outlook may be revised to stable if the Insurer is able to sustain the better business momentum seen in 2H FY Sep 2021 and improve its underwriting performance considerably from the current level. The ratings continue to give credence to the Insurer’s strong capitalisation, reserves coverage and liquidity profile.

Amid the tough operating environment, overall premiums were marginally lower (-2%) at RM250.7 mil in FY Sep 2021 (FY Sep 2020: RM255.9 mil) due to the continued downtrend in motorcycle premiums. This was partly moderated by the better showing of the private car and liability segments. Despite a weaker topline, the Insurer posted an underwriting profit of RM3.2 mil, thanks to lower claims expenses in view of a decline in road accidents, which overturned the RM5.3 mil underwriting deficit recorded in FY Sep 2020. Similarly, pre-tax profit improved 12% y-o-y to RM15.0 mil (FY Sep 2020: RM13.4 mil), albeit still much lower than pre-pandemic levels. 

P&O Insurance has started diversifying and expanding its presence in the private car and non-motor businesses in recent years. This came on the heels of stiff competition and pricing pressure on motorcycle insurance – an area it had previously dominated – which led to a steep downward trend in market share. The Insurer also ramped up efforts on the digital front to extend customer reach. Growth generated through digital channels surged in the second half of FY Sep 2021, contributing a sizeable 25% of total premiums. The robust growth was reflective of its stronger promotional and marketing tie-ups with digital agents. This coupled with other new product offerings is expected to propel the Insurer’s business performance going forward. However, a longer track record is required to assess the sustainability of its recent business momentum, keeping in mind its modest size and keen competition.

P&O Insurance’s capital adequacy ratio was a robust 222% as at end-September 2021, a more than comfortable buffer against possible adverse claims developments and supportive of future business growth. Reserves coverage, which stood at a solid 258% as at end-September 2021 (end-September 2020: 204%) remains commensurate with the ratings. Liquid assets covered 1.7 times the Insurer’s net insurance contract liabilities as at the same date, keeping its liquidity profile strong.


Analytical contacts
Tan Shu Xuan
(603) 3385 2497

Sophia Lee
(603) 3385 2619


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.

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