Fitch Affirms Etiqa Takaful at IFS 'A' Rating; Outlook Stable

(The following statement was released by the rating agency) SINGAPORE/HONG KONG, November 17 (Fitch) Fitch Ratings has affirmed Malaysia-based Etiqa Takaful Berhad's (ETB) Insurer Financial Strength (IFS) rating at 'A' with Stable Outlook. KEY RATING DRIVERS The rating reflects ETB's improvement in capitalisation, sustained operating profitability and dominant market position in Malaysia's general and family takaful sector. The rating also incorporates its status as one of the core operating entities of the Etiqa Group. The agency believes that its parent, Maybank Ageas Holding Berhad (MAHB), is capable of providing capital support to ETB if needed. ETB's regulatory risk based capital ratio on a consolidated basis improved slightly to 155.7% at end-June 2014, from 143.5% at end-2013, moderately exceeding the regulatory minimum of 130%. This is mainly attributable to the issuance of MYR300m of subordinated sukuks, or Islamic bonds, during 1H14. This issuance does not have a material impact on the financial flexibility of the group - Fitch estimates MAHB's financial leverage on a consolidated basis will remain below 15% (end-2013: 10%).

ETB registered consistently healthy operating performance, with the combined ratio amounting to 88.3% at end-June 2014 (2013: 86.1%). The company is a dominant player in the takaful market with more than 20 years of operating history. It captured 46.2% of the general takaful segment in terms of gross contributions and 28.6% of the family takaful segment in terms of new business in 2013. ETB has been able to market takaful products through multiple distribution channels, including conventional intermediaries, such as agents and brokers, and several bancassurance partnerships. Fitch believes its extensive distribution networks will enable ETB to sustain its business growth in the mid-term. Fitch expects ETB's motor portfolio to remain challenged by the market-wide underwriting deficit of the third-party bodily injury and death motor insurance, as more than 70% of ETB's general takaful business originates from the motor insurance class. The agency does not expect the gradual adjustment in motor insurance premium pricing that was recently allowed by the regulators to have a significant impact on the underwriting result of ETB's motor portfolio in the near term. RATING SENSITIVITIES An upgrade is unlikely in the near term as ETB'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: - change in ETB's status as a core operating entity of the Etiqa Group - inability to increase ETB's statutory risk based capitalisation to a level consistently higher than 150%, - a significant change in MAHB's financial leverage on a consolidated basis to more than 30% for a prolonged period (end-2013: 10%), - a reduction in the underwriting margin of ETB's general takaful portfolio with a combined ratio higher than 105% for a sustained period, - a material deterioration in lapse rates or in mortality experiences of the company's family takaful business, - a downgrade of Malaysia's Local-Currency IDR by more than one notch. Evidence of an adverse change in ETB's financial metrics due to a tougher 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=924935 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.