AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of "a" of Energas Insurance (L) Limited (Energas) (Malaysia). The outlook of these Credit Ratings (ratings) is stable.
These ratings reflect Energas’ 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 (ERM). In addition, the ratings factor a neutral impact from the company’s 100% ownership and integration with Petroliam Nasional Berhad (Petronas).
The company’s risk-adjusted capitalisation remains at strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), supported by Energas’ low underwriting leverage, conservative investment strategy and strong liquidity. Investment assets consist of mainly cash and deposits held at well-established domestic financial institutions, and investment-grade debt securities. An offsetting factor is Energas’ high exposure to low frequency-high severity loss events given the nature of the company’s energy portfolio. Nonetheless, the significant underwriting risks are managed through the company’s low net retention and comprehensive reinsurance programs, which are placed with high quality reinsurers.
Despite the company’s history of volatile loss ratios, Energas has demonstrated a track record of strong underwriting performance as demonstrated by a favorable five-year average combined ratio of 53% (2016-2020). Management expenses as a percentage of net premium earned (management expense ratios) have been consistently low at less than 4% over the past five years, while reinsurance commission income has offset the company’s acquisition costs and remained instrumental in generating Energas’ underwriting profits. Investment income arising from bank deposits and debt securities has contributed considerably to overall earnings and helped counterbalance volatility in the company’s technical results. However, Energas may face a prospective decline in reinsurance commission income under a hardening reinsurance market, and a decrease in investment returns given the prolonged low interest rate environment.
As a single-parent captive of Petronas, Energas benefits from a direct access to the group and a comprehensive knowledge of its insurance risks, which effectively facilitate the company’s underwriting activities. Nevertheless, the company’s portfolio is heavily concentrated by line of business and geography by being focused mainly on large energy risks in Malaysia. On the back of the gradual recovery of oil and gas industry, AM Best expects Energas to grow its premium volume, driven by the group’s higher planned capital expenditures, as well as potential rise in premium rates for upstream and downstream business.
The company’s ERM framework is well-integrated into the group’s risk management function. AM Best considers Energas’ risk management capabilities to be appropriate for the company’s key risk profiles.
AM Best remains the leading rating agency of alternative risk transfer entities, with more than 200 such vehicles rated throughout the world. For current Best’s Credit Ratings and independent data on the captive and alternative risk transfer insurance market, please visit www.ambest.com/captive.
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Tran Nhat Trung
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Senior Financial Analyst
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Manager, Public Relations
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