RAM Ratings downgrades P&O Insurance to A3/Stable

Published on 20 Jan 2023.

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RAM Ratings has downgraded Pacific & Orient Insurance Co. Berhad’s (P&O Insurance or the Insurer) insurer financial strength ratings from A2/Negative/P1 to A3/Stable/P2. The rating of the Insurer’s proposed RM90 mil Perpetual Subordinated Notes Programme was concurrently lowered from A3/Negative to BBB1/Stable. The programme is rated one notch below P&O Insurance’s long-term insurer financial strength rating to reflect its status as an unsecured and subordinated obligation of the Insurer.

The downgrade reflects sustained weakening of the Insurer’s underwriting performance vis-à-vis the industry amid stiff competition. P&O Insurance is a small player in the general insurance industry, seeing its niche in motorcycle insurance continue to be eroded (currently ranking fourth in a segment it previously led). The growth of its private car segment in recent years has yet to contribute to a sustained improvement in underwriting performance. 

Despite a promising fourth-quarter showing in FY Sep 2021, P&O Insurance suffered an underwriting loss in FY Sep 2022 (RM4.7 mil vs. RM3.4 mil underwriting profit in FY Sep 2021) owing to intense competition in the overall motor insurance market and the normalisation of claims levels as the economy reopened. A weaker investment performance also contributed to a smaller pre-tax profit of RM3.3 mil (FY Sep 2021: RM15.0 mil).

P&O Insurance’s claims ratio (61% in FY Sep 2022) stayed higher than the industry’s (53% in 1H 2022), given its motor segment-heavy portfolio (nearly 70% of gross premiums). The motor class typically experiences a higher claims ratio than other classes of business. As road traffic returned to normalcy, motor claims generally rose across the industry. Due to an elevated management expense ratio of above 40% (2019-2021 industry average: 24%), P&O Insurance’s combined ratio of 103% in fiscal 2022 (fiscal 2021: 97%; pre-pandemic fiscal 2017-2019 average: 93%) was also notably higher than the industry’s 92% (in 1H 2022) – a consistent trend over the past few years (2019-2021 industry average: 89%). 

Going forward, the Insurer plans to grow PrOmilej – a private car insurance product featuring mileage-based pricing – as the claims ratio for this policy is comparatively lower (around 60%) than its traditional private car products. It will also refocus efforts to enhance its presence in the motorcycle insurance space. The outcome of these initiatives remains to be seen. 

The Insurer’s ratings are supported by its strong capitalisation and reserves coverage as well as a healthy liquidity profile, which continues to be constrained by its small business stature as a general insurer. P&O Insurance’s capital adequacy ratio of 219% as at end-September 2022 provides a comfortable buffer against possible adverse claims developments. As at the same date, reserves coverage stood at a solid 213% while liquid assets covered 1.3 times the Insurer’s net insurance contract liabilities.


Analytical contacts
Lee Yee Von
(603) 3385 2503

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.

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 2023 by RAM Rating Services Berhad

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