AM Best has assigned a Financial Strength Rating of A- (Excellent) and a Long-Term Issuer Credit Rating of “a-” (Excellent) to Etiqa General Insurance Bhd (EGIB) (Malaysia). The outlook assigned to these Credit Ratings (ratings) is stable.
The ratings reflect EGIB’s balance sheet strength, which AM Best assesses as strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management (ERM). The ratings also factor in a neutral impact from the company’s ultimate majority ownership by Malayan Banking Bhd, one of the largest financial services groups incorporated, listed and domiciled in Malaysia.
EGIB’s balance sheet strength is underpinned by its risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which is expected to remain at the strongest level over the medium term. AM Best views the company as having a moderate risk investment strategy with it holding a combination of low-risk assets, including cash, deposits and fixed-income instruments, albeit with notable exposure to higher-risk assets of non-rated fixed-income instruments, equities and real estate.
In addition, the company exhibits high reinsurance usage and dependence, with a net retention ratio of 37% in 2020. The company’s reinsurance recoverable is also a large balance sheet item, equivalent to three times its shareholders’ equity at the end of 2020. Furthermore, AM Best views EGIB to be exposed to heightened credit/dispute risk arising from reinsurance recoverable from historical aviation losses.
EGIB’s operating performance is assessed as strong, with a five-year average non-life operating ratio of approximately 69% (2016-2020). The low net loss experienced in the company’s core business lines of fire and personal accident, as well as favourable reinsurance commission income from ceded risks, have been the key drivers of technical profitability over recent years, albeit in part offset by underwriting losses from the company’s motor business.
Overall earnings have been supported by favourable underwriting performance and consistent investment income. Prospectively, AM Best expects a challenging operating environment arising from the COVID-19 pandemic and the continued phased liberalisation of the motor and fire insurance business in Malaysia. Nonetheless, EGIB continues to enhance its pricing and risk selection capabilities, as well as strengthen its distribution and product design, which are expected to support continued strong underwriting and operating performance.
The business profile assessment of neutral reflects EGIB’s position as the sixth-largest general insurer in Malaysia with a market share of over 7%, based on the 2020 gross direct written premium. The company’s underwriting portfolio is diversified moderately by a line of business and distribution channel, albeit with all businesses originating from Malaysia.
AM Best views EGIB’s ERM approach as appropriate given the current size and complexity of its operations. Risk management capabilities are typically considered appropriate relative to the profile of the company’s key risks, although there are some areas where AM Best views EGIB’s risk management capability as marginal relative to the associated risk profile.
These assigned ratings were the result of an accepted appeal from EGIB.
