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RAM Ratings reaffirms Manulife Holdings’ AA3/Stable/P1 ratings

Published on 16 Nov 2021.

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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 extraordinary support from Manulife Financial Corporation (MFC), MHB’s parent, will be forthcoming if needed, given the Group’s importance in MFC’s strategy to continue growing in Asia. The credit profile of the Group’s core insurance subsidiary, Manulife Insurance Berhad (MIB or the Insurer), and MHB’s structural subordination as a non-operating holding company are also rating factors.

MIB’s credit metrics have stayed intact amid growth and earnings challenges arising from the current economic downturn. Its new business (NB) volume was affected by the imposition of restricted mobility measures last year (as was the case for the life sector), with most players charting topline recovery in 1H 2021 (MIB: +6%; industry: +24%). In view of the Insurer’s policy conservation efforts (and to some extent, its customer demographic), lapses and surrenders have not taken a turn for the worse since our last review. We caution that some weakening in persistency experience would, however, be inevitable if economic recovery is sluggish.

Better mortality and persistency experience as well as higher gains from equity investments led most of the improvement in the Group’s pre-tax profit last year, which was 19% higher at RM45.8 mil (FY Dec 2019: RM38.4 mil). While growth in overall gross premiums had played a part in strengthening MHB’s bottom line, NB premiums continued to contract in 2020 (-16% y-o-y). NB secured through the bancassurance channel slid further while agent-driven sales sustained its growth momentum (1H fiscal 2021: +9%; fiscal 2020: +11%). Lower reserving needs following the rise in MGS yield in the first half of the year and larger gains from equities pushed MHB’s pre-tax profit to RM56.6 mil in 1H fiscal 2021 (1H fiscal 2020: RM14.9 mil), which translates into an annualised pre-tax return on assets of 1.7% (three-year average: 0.7%).

MIB’s capital adequacy ratio stayed above its individual target capital level and the regulatory minimum. The Insurer’s capital position is envisaged to be supportive of future growth, sufficiently cushioning additional reserving needs and the effects of investment volatility. The impact of the latter has been manageable for MIB to date in view of the sizeable proportion of investment-linked policies (about a third of total insurance contract liabilities), where the investment risks are borne by policyholders. The relatively high proportion of MIB’s equity investments (around 20%-25% of total life fund investments in the last five years) however continues to render its investment yield susceptible to fluctuations in equity valuations (1H FY Dec 2021: -0.7%; FY Dec 2020: 8.5%).

MHB’s lack of scale remains a key rating constraint. The small scale of the Group’s life insurance and asset management businesses limit its ability to reap benefits of scale. This could also be a factor restricting business growth in a competitive market. As at end-June 2021, MIB had a 2.3% share of the life insurance industry’s total annualised premium equivalent while Manulife Investment Management (M) Berhad (the Group’s asset management unit) held a 2.2% market share of the fund management industry’s assets under management.

 

Analytical contacts
Loh Kit Yoong
(603) 3385 2493
kityoong@ram.com.my

Sophia Lee
(603) 3385 2619
sophia@ram.com.my

 

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 2021 by RAM Rating Services Berhad



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