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RAM Ratings affirms MCIS Insurance
Published on 11 Jan 2024.
RAM Ratings has affirmed the A1/Stable/P1 insurer financial strength ratings (IFS) of MCIS Insurance Berhad (MCIS Life or the Insurer) and the A2/Stable rating of its RM200 mil Tier 2 Subordinated Debt (2021/2031). The one-notch differential between the long-term IFSR and issue rating reflects the status of the notes as unsecured and subordinated obligations of MCIS Life.
The rating action considers the Insurer’s comfortable capitalisation, conservative investment strategy compared to peers and healthy liquidity. MCIS Life’s modest profitability and small presence in the competitive domestic life insurance industry (under 2% share of annualised premium equivalent in 2022 and 1H 2023) continue to moderate its ratings.
The Insurer maintains a prominent focus on the lower-income segment, which differentiates it from other players. While this segment is relatively untapped compared to the better-insured mass and mass affluent income groups, MCIS Life’s business growth of late has been tempered by keen competition, particularly from takaful peers. This along with lower consumer disposable income from the higher cost of living has dampened demand, translating to slower-than-industry new business (NB) expansion in FY Dec 2022 and 1H FY Dec 2023. Besides offering life policies to individuals, MCIS Life has been growing its employee benefit plans for corporates, which accounted for over half of total NB in recent periods.
Pre-tax return on assets stayed modest, averaging 0.8% in the last three years (2020-2022). As the Insurer’s investment performance recovered amid some moderation in bond yields, pre-tax profit was an improved RM33.1 mil in 1H FY Dec 2023 (1H FY Dec 2022: loss of RM44.4 mil). MCIS Life’s profitability is weighed down by a high expense base. Its management expense and commission ratio of 35% in fiscal 2022 was higher than the industry average of 23%. Profitability is expected to be challenged until the Insurer can achieve scale and its earnings from in-force business are able to offset NB strain.
We remain comforted by MCIS Life’s capital adequacy ratio (CAR) of 224% as at end-June 2023 (industry: 216%) and its policy of maintaining a healthy 20-30 percentage point buffer between its individual target capital level and CAR.
Sanlam Limited (largest non-banking financial services company in Africa) currently owns a 51% stake in MCIS. In our rating assessment, we have not accorded support uplift in MCIS LIfe’s IFS for extraordinary parental support from Sanlam given its small overall contribution to the Group’s business and revenue. However, through the appointment of key senior executives, Sanlam exercises strong oversight and influence over MCIS Life’s strategic direction. MCIS Life also gains from Sanlam’s technical expertise and vast experience in financial intermediation. Given Sanlam’s heavy involvement in its operations, a divestiture will warrant a rating reassessment. In January 2023, Berjaya Corporation Berhad announced that it is in negotiations to acquire a controlling stake in MCIS Life.
Analytical contacts
Amy Lo
(603) 3385 2509
amy@ram.com.my
Sophia Lee
(603) 3385 2619
sophia@ram.com.my
Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@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 2024 by RAM Rating Services Berhad
