Fitch Affirms Etiqa Insurance at IFS 'A'; Outlook Stable

(The following statement was released by the rating agency) SINGAPORE/HONG KONG, November 17 (Fitch) Fitch Ratings has affirmed Malaysia-based Etiqa Insurance Berhad's (EIB) Insurer Financial Strength (IFS) rating at 'A' with Stable Outlook. KEY RATING DRIVERS The rating reflects EIB's sound financial fundamentals, with solid capital and sustained profitability. The rating also considers the company's extensive distribution network and its status as one of the core operating subsidiaries within Maybank Ageas Holdings Berhad (MAHB), a major insurance group in Malaysia. EIB's capitalisation remained consistently strong, with the company's statutory risk-based capital (RBC) ratio reaching 273.6% at end-June 2014, well in excess of the regulatory minimum of 130%. In view of the company's ongoing surplus growth, Fitch believes that EIB is capable of keeping an adequate capital buffer to support its premium expansion. The company further strengthened the underwriting profitability of its general insurance portfolio in 2013. The company's overall loss ratio improved to 45.9% in 1H14 from 55.5% in 2013. Motor insurance is the largest class, constituting about 45% of its total net written premiums. The agency believes the underwriting results of EIB's motor insurance portfolio will continue to be constrained by the market-wide adverse claim results of third-party bodily injury and death motor insurance in the near term, notwithstanding permission granted by Bank Negara Malaysia to insurers to make gradual adjustments on motor insurance tariff rates. Nonetheless, Fitch expects EIB's overall underwriting result to remain profitable in the near term, given the company's disciplined underwriting strategy and its initiative to further expand in fire insurance, which is generally more profitable than motor insurance in Malaysia. EIB recorded a 24% increase in gross premiums written from life funds in 1H14 on an annualised basis. Fitch believes that the growth prospects of EIB's life portfolio remain positive in the mid to long term given the company's wide agency network across Malaysia and its bancassurance partnership with Malayan Banking Berhad. RATING SENSITIVITIES An upgrade is unlikely in the near term as EIB's IFS rating is at the same level as Malaysia's Local-Currency Issuer Default Rating (IDR) of 'A', which is on Negative Outlook. Key rating triggers that could result in a downgrade include: - a decrease in EIB's statutory RBC ratio to below 200% on a sustained basis, - an increase in MAHB's financial leverage on a consolidated basis to more than 30% (end-2013: 10%), - a deterioration in the company's underwriting margin for general insurance with a combined ratio consistently above 105%, - a sharp decline in lapse rates and mortality profit, - a downgrade of Malaysia's Local-Currency IDR by more than one notch. Evidence of adverse change in EIB's financial metrics due to a rougher operating environment associated with a weakening sovereign rating could also lead Fitch to reassess the one-notch differential between the insurer's rating and the sovereign's Local-Currency IDR. Contacts: Primary Analyst Wan Siew Wai Senior Director +65 6796 7217 Fitch Ratings Singapore Pte Ltd. 6 Temasek Boulevard #35-05 Suntec Tower Four Singapore 038986 Secondary Analyst Jeffrey Liew Senior Director +852 2263 9920 Committee Chairperson Clara Hughes Senior Director +4420 3530 1249 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available at www.fitchratings.com.">www.fitchratings.com. Applicable criteria, 'Insurance Rating Methodology', dated September 2014, are available on www.fitchratings.com.">www.fitchratings.com. Applicable Criteria and Related Research: Insurance Rating Methodology http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=756650 Additional Disclosure Solicitation Status http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=924936 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.