Fitch affirms Etiqa group's ratings, outlook stable

Maybank said Etiqa is the fastest-growing insurance/takaful company in Malaysia year-to-date in all segments, including life insurance, family takaful, general insurance and general takaful.

KUALA LUMPUR: Fitch Ratings has affirmed the 'A-' (Strong) Insurer Financial Strength (IFS) ratings of Etiqa group's core operating entities - Etiqa General Insurance Bhd (EGIB), Etiqa Family Takaful Bhd (EFTB) and Etiqa Insurance Pte. Ltd. (EIPL). 

It said on Monday that it had also assigned Etiqa Life Insurance Bhd (ELIB) and Etiqa General Takaful Berhad (EGTB) Insurer Financial Strength (IFS) ratings of 'A-' (Strong). 

"The Outlook is Stable," it said. 

This follows a reorganisation within the group to comply with Malaysia's regulatory requirement to split the composite businesses into separate life/non-life and general/family takaful entities," it said. 

Etiqa Insurance Bhd has been renamed EGIB and the life business now resides in ELIB.  Etiqa Takaful Bhd has been renamed EFTB, with the general takaful business transferred to EGTB. 

Fitch continues to view all entities as core to the group's operations.

The international ratings agency said the group's IFS ratings are constrained by Malaysia's sovereign Issuer Default Rating (IDR) of 'A-' and are one notch below its unconstrained IFS rating of 'A'. 

“Fitch will not rate the Etiqa entities above the sovereign due to the group's significant concentration of business and assets within the country,” it said.

Fitch said the affirmation and assignment of the ratings reflect the group's established market franchise as one of Malaysia's major insurance groups, with dominant market positioning in both conventional insurance and takaful sectors. 

The ratings also take into account the group's very strong capitalisation and strong investment profile.

Fitch views the group's business profile as strong. EGIB, ELIB, EGTB, EFTB and EIPL are considered core subsidiaries of Maybank Ageas Holdings Bhd and hence all have been assigned the group rating. 

The five entities are wholly owned by  Maybank Ageas and operate in Etiqa's key market segments in Malaysia and Singapore. 

The entities share the “Etiqa” branding and show significant synergies and cross-reporting in their processes, management and resources. 

Fitch expects Maybank Ageas to have adequate financial and capital strength to support its core operating entities if needed.

“Fitch's view is also supported by the diversification in earnings contribution, with the four Malaysian-based entities each contributing more than one-fifth of the group's total profit before tax in 2017. 

“The consolidated three-year average return on equity and pretax return on assets stood at 11.6% and 2.9%, respectively, in 2017, well within ratio guidelines for its ratings category,” it said.

The Etiqa group's capitalisation remained very strong in 2017. The score on Fitch's Prism Factor-Based Model (FBM) is within median guidelines for its rating category, both as a group and at the individual operating entity level. 

The consolidated financial leverage stood at 13% at end-2017, in-line with the average of previous years. Fitch expects the entities' operations to continue to be managed at the group level, underpinned by steady surplus growth and sound capital and risk management.

Investments in fixed-income securities, cash and deposits accounted for more than 80% of total invested assets and exposure to risky assets, such as equities, continues to be manageable. 

“Fitch expects Etiqa's investment strategy to remain prudent and does not expect it to deviate significantly in the near term,” it said.

An upgrade is unlikely in the near term, as the Insurer Financial Strength rating is constrained by Malaysia's Long-Term Local-Currency IDR of 'A-'.