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RAM Ratings reaffirms Manulife Holdings’ AA3/Stable/P1 ratings
Published on 15 Nov 2022.
RAM Ratings has reaffirmed Manulife Holdings Berhad’s (MHB or the Group) corporate credit ratings of AA3/Stable/P1.
The rating action reflects our expectation that extraordinary support will be forthcoming from Manulife Financial Corporation (MFC) – MHB’s ultimate parent – if needed, given the Group’s importance in MFC’s Asia-focused growth strategy. 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 considerations.
MIB’s credit metrics have stayed intact since our last review, with healthy capitalisation still a key rating strength. The Insurer’s regulatory capital adequacy ratio, which remained comfortably above its individual target capital level as at end-December 2021 and end-June 2022, is anticipated to be supportive of organic growth and cushion the effects of investment volatility. We understand that the implementation of Malaysian Financial Reporting Standard (MFRS) 17 next year will not negatively affect the regulatory capital of insurers. MIB does not expect to tweak its business strategy with the change in accounting standard. MHB remains debt-free. In addition to equity fundraising, its dividend reinvestment programme provides another avenue to bolster capital if required.
Against the backdrop of economic recovery, the Insurer’s new business generation was still marginally weaker in 2021 (-0.1% y-o-y; industry: +13%) but picked up in 1H 2022 (+3%; industry: -7%). On the investment front, MIB’s weaker yields (1H FY Dec 2022: -2.2%; FY Dec 2021: 1.1%; FY Dec 2020: 8.5%) are not unexpected in light of monetary policy normalisation and dampened equity valuations. As a result, MHB’s pre-tax profit plunged to RM6.2 mil in 1H fiscal 2022 (1H fiscal 2021: RM56.6 mil), with premium growth partially moderating the drop. Its three-year pre-tax return on assets stayed soft at 1.0% (FY Dec 2021: 1.6%).
The small scale of MHB’s life insurance and asset management businesses remains a key rating constraint, limiting its ability to reap the benefits of scale in a competitive market. MIB had a 2.6% share of the life insurance industry’s total annualised premium equivalent as at end-June 2022, while Manulife Investment Management (M) Berhad (the Group’s asset management unit) held a 2.6% share of the fund management industry’s assets under management as at the same date.
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 2022 by RAM Rating Services Berhad
