Islamic insurer says will disburse at least 50% of profit
SYARIKAT Takaful Malaysia Bhd (STMB) aims to keep its shareholders happy as the country’s oldest takaful company strives to maintain a high dividend policy, which is among the highest in the financial services industry.
Judging by its commendable dividend payout ratio, the company appears to be unperturbed by the tough operating economic environment coupled with lower commodity prices and the weak ringgit.
Last year, STMB paid out a final single tier dividend of 35% amounting to RM57mil.
With the approved final single tier dividend, the total dividends for last year including an interim single tier dividend of 40% (amounting to RM65.2mil), represented a total payout ratio of about 88% of the company’s net profit.
On the other hand, some financial services based companies that offers good dividends like general insurer LPI Capital Bhd ’s dividend payout ratio last year was close to 59% while the country’s largest lender Malayan Banking Bhd (Maybank) stood at 78.5% (with full year net dividend of RM5.27bil).
Responding to queries from StarBizWeek, STMB group managing director Datuk Seri Mohamed Hassan Kamil says the company will strive to maintain its high dividend payout which has been consistent for the past few years. He attributes this to the company’s strong capital base and management of its expenses. For example last year, its capital ratio was above 200% and expense ratio was relatively low at 14%.
“We believe our payout ratio is one of the highest in the financial services industry.
“Generally most companies would have a dividend policy of at least 50%. STMB does not have a published written dividend policy but internally we are looking at at least a 50% payout. Key determining factors for dividend payout are very much dependent on company profitability as well as capital adequacy ratio,’’ he explains.
Analysts agree STMB could continue with its high diviend policy as the company is expected to post a record year, underpinnned by the strong growth of its employees benefit business. At the company’s recent AGM and EGM, Hassan said he expected 2015 to be a record year for the takaful operator driven by its employee benefits business and was upbeat of outperforming the industry’s growth as well as improve its market share this year.
Towards this end, he said this year will be a record year for STMB judging from the strong premium growth in the first quarter versus the same quarter last year.
Without elaborating on the growth figures, he said for the first quarter, the company was able to secure major customers, namely in the group employee benefits business with premiums averaging millions of ringgit per customer.
Hassan says the shift to takaful insurance from conventional insurance is another booster for the performance of the company this year. Analysts and industry observers attributes the company’s earnings growth momentum and its ability to defend its market share, amongst others, to its 15% no-claim cash back policy - the highest in the takaful industry over the last five years.
As of end April (2015), the company disbursed RM11mil as part of its cash back policy offered to all its general takaful customers for making no claims. Last year, STMB paid out a record amount of RM30mil via the cash back policy to its customers and business partners.
This year, Hassan says the company will continues to reward customers with a 15% cash back should they make no claims during the coverage period.
For more than 20 years, STMB has been the only Islamic insurance company in the country to have consistently rewarded its customers with cash-back claims, a unique feature that has clearly distinguish the company from all its competitors in the Malaysian insurance industry.
On whether the company expects a higher investment yield this year, he adds: “In the past, we have delivered a sustainable five-year average investment yield of more than 6% per annum.
This year, we are anticipating that the investment return will continue to be at a reasonable level as we continue to be active in the market, taking advantage of market movements as well as selectively purchasing higher yielding sukuk papers with good credit scores to bolster the sukuk portfolio yield and recurring income.”
In view of its exposure to 1MDB’s Islamic debt papers, although relatively small, does that mean the company is reviewing its investment stance? And will there be shift in its investment portfolio?
Hassan says STMB will continue to be prudent in outlining its investment strategies to ensure that risks and returns are managed efficiently, adding that its asset allocation strategy will be subjected to review on a periodical basis, taking into account the prevailing market conditions and the profiles of its liabilities.
The company’s exposure to 1MDB’s Government-guaranteed Islamic debt papers or sukuk is less than 1.5% of the company asset base as at December 31, 2014.
Sukuk and equities are still the major asset classes of STMB’s portfolio, representing 56% and 12% respectively of the company`s investible assets under management.
As for mergers and acquisitions (M&As), the takaful operator is looking to acquire a takaful company over the next two years to strengthen its operations in the takaful business.
The move for M&As is in line with the Financial Services Act (FSA) and Islamic Financial Services Act (IFSA) 2013.
Under the FSA and IFSA, which came into force on July 1 2013, composite insurers and takaful players are, among others, required to split their life and general insurance businesses under separate licences.
Analysts concurs that the move would spur M&As in the insurance and takaful sector as more capital needed to run separate entities which paves the way for stronger capitalised insurers and takaful operators to acquire smaller and less capitalised ones.
“The restructuring under the IFSA will enable us the opportunity to expand via M&As and we hope to secure an acquisition of a takaful player in 2017,” he says.