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.
Loh Kit Yoong
(603) 3385 2493
(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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Ratings on Manulife Holdings Berhad