RAM Ratings assigns AA1 to Etiqa Insurance's proposed RM500m bonds

KUALA LUMPUR: RAM Rating Services Bhd has assigned a final long-term rating of AA1 to Etiqa Insurance Bhd's proposed subordinated bonds of up to RM500mil.

It said on Tuesday Etiqa's long- and short-term claims-paying ability (CPA) ratings were reaffirmed at AAA and P1. Both long-term ratings have a stable outlook.

Etiqa is a unit of Maybank Ageas Holdings Bhd, an insurance and takaful holding company. Malayan Banking Bhd holds a 69.05% stake in Maybank Ageas and Ageas Insurance International NV 30.95%.

RAM Ratings noted Etiqa had a significant competitive advantage due to Maybank's vast distribution network and established franchise. The company ranks among Malaysia's leading life and general insurers.

"Etiqa enjoys robust capitalisation, with a regulatory capital-adequacy ratio (CAR) of 225% as at end-December 2012 -- well above the regulatory minimum of 130%. The CAR is expected to exceed 250% after the bond issuance," said the ratings agency.

RAM Ratings said Etiqa has a favourable profit track record due to its well-diversified product portfolio, prudent underwriting standards and low costs.

Its consolidated three-year average pre-tax operating margin was 26.1% and return on assets of 3.4%.

"The ratings are moderated by, among others, the proliferation of single-premium policies and investment-linked products in Etiqa's new underwriting business.

"Although more profitable, it would be harder for the company to ensure long-term sustainable income from these products given that their underlying demand depends on stock-market conditions, which can be volatile," said the ratings agency.

RAM Ratings noted the current low interest rates, if prolonged, may weigh on insurers' investment returns and could encourage greater risk taking to maintain profitability, especially for general insurance underwriting.

"That said, we believe that Etiqa's ability to manage these challenges is fortified by its strong balance sheet, leading market position and conservative risk management," said the ratings agency.

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