RAM Ratings has affirmed Hong Leong Assurance’s AA2/Stable/P1 insurer financial strength (IFS) ratings and the AA3/Stable rating of its RM2 billion Subordinated Notes Programme (2020/-). The one-notch difference between HLA’s long-term IFS rating and the rating of the programme reflects the status of the notes as unsecured and subordinated obligations of the Insurer.
With an 8.3% share of the industry’s annual premium equivalent (APE) in 1H 2023, RAM said the Insurer ranks among the top five life insurers in Malaysia. HLA’s agency force and access to the branch network of its sister company, Hong Leong Bank Berhad, anchors the Insurer’s distribution capabilities. APE volumes moderated further in FY Jun 2023 (-16%; FY Jun 2022: -12%) due to weaker demand for investment-linked products amid unfavourable market conditions and an elevated cost of living which pressures the consumer appetite for investment products. Nonetheless, APE volumes are still higher than pre-pandemic levels. HLA sees continued demand for protection-based policies, thanks to greater insurance awareness, especially after the pandemic.
The Insurer’s gross premiums declined marginally to RM3.10 bil in FY Jun 2023 from RM3.17 bil the previous year. Larger reserves set aside for policyholders and higher claims arising from surrendered policies were offset by valuation gains in HLA’s investment portfolio as bond yields retreated, which lifted pre-tax profit by 24% to RM381 mil (FY Jun 2022: RM309 mil). Over the longer term, an emphasis on regular premium plans with protection elements will support HLA’s earnings stability and enhance margins.
Owing to lower bond yields which resulted in higher interest rate risk charges, HLA’s capital adequacy ratio dipped in fiscal 2023 but remained healthy and supportive of future new business growth. As at end-June 2023, liquid assets of RM16 bil (0.9 times HLA’s net insurance contract liabilities) were adequate to meet potential claims.
