Best’s News & Research Service - December 08, 2022 08:48 AM (EST)
AM Best Affirms Credit Ratings of Lonpac Insurance Bhd
- December 08, 2022 08:48 AM (EST)
Singapore //BestWire// - AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” (Excellent) of Lonpac Insurance Bhd (Lonpac) (Malaysia). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Lonpac’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.
Lonpac’s balance sheet strength is underpinned by its risk-adjusted capitalisation, which was at the strongest level at year-end 2021, as measured by Best’s Capital Adequacy Ratio (BCAR), and is expected to remain at this level over the near to medium term. Despite a high dividend payout ratio over the past five years (2017-2021), the company has demonstrated strong capital growth from retained earnings over this period. In addition, the company has a generally conservative investment portfolio comprising cash, bonds and debt-focused unit trust funds. However, Lonpac is viewed to have a moderate dependence on third-party reinsurance to enable the underwriting of large limit risks and to manage catastrophe exposure accumulation.
AM Best assesses the company’s operating performance as strong, as evidenced by its five-year average return-on-equity ratio of 31.5% and combined ratio of 66.1% (2017-2021). In 2021, the company’s combined ratio improved driven by COVID-19-related movement restrictions in Malaysia. This has been followed by an uptick in claims activity in 2022 due to easing of these restrictions. Underwriting margins for property and marine classes of business have benefited from low net loss experience and favourable reinsurance commission income over a number of years, which remain the key drivers of technical profitability. Investment returns continue to be a stable contributor to overall earnings. Prospectively, claims normalisation, as well as the ongoing phased liberalisation of motor and fire insurance pricing in Malaysia may constrain underwriting margins over the near to medium term. Nonetheless, AM Best expects the company to maintain strong operating performance over the medium term, supported by its disciplined underwriting approach.
The business profile assessment of neutral reflects Lonpac’s position as a mid-sized non-life insurer in Malaysia, with a market share of approximately 8%, based on 2021 gross direct premium. The company’s underwriting portfolio is diversified moderately by line of business, albeit with majority of business originating from Malaysia. Lonpac continues to benefit from a long-standing relationship with Public Bank Berhad, which provides the company with preferential access to profitable property business through the banking channel.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.