Fitch Affirms Pacific & Orient Insurance at IFS 'BBB+'; Outlook Stable

(The following statement was released by the rating agency) SINGAPORE/HONG KONG, January 28 (Fitch) Fitch Ratings has affirmed Malaysia-based Pacific & Orient Insurance Co. Berhad's (POI) Insurer Financial Strength (IFS) rating at 'BBB+' with Stable Outlook. KEY RATING DRIVERS The affirmation reflects POI's continued healthy financial fundamentals, sound capitalisation, conservative investment strategy and efficient distribution capability in the motorcycle insurance market. The rating is constrained by its niche business focus and an industry-wide underwriting deficit from third-party motor insurance business in Malaysia. POI's gross premiums declined slightly in the financial year ended 30 September 2014 due to stiffer market competition but it continued to post stable net underwriting performance. Its combined ratio remained below 90% over the three financial years to FY14, primarily attributable to a favourable claims experience and good expense management. More than 80% of POI's business portfolio is from the motor class. The company continues to exercise discipline in its underwriting risk-selection, with greater emphasis on bottom-line profitability than merely top-line growth. In Fitch's view, POI's capital strength is strong and the company is likely to maintain sufficient capital buffer to support its significant business concentration risk in motorcycle insurance. Ongoing surplus growth and a change in the liability risk charge formula based on the updated capital adequacy framework since March 2014 have improved its regulatory capital ratio to above 240% in FY14, well beyond the regulatory minimum of 130%. In terms of POI's investment mix in FY14, Fitch regards it to be very prudent and liquid as more than 90% of the invested assets are placed in cash and deposits. POI's loss reserves are also growing at an acceptable rate that is commensurate with its underwriting exposure. RATING SENSITIVITIES Negative rating triggers include: - weakening in capitalisation with the ratio of net written premiums to shareholders' equity consistently higher than 2x (FYE14: 1.29x), - a deterioration in underwriting result with combined ratio persistently exceeding 97% (FY14: 88.0%), and - an escalation in financial leverage to a level higher than 35% (FYE14: 21%) on a sustained basis. An upgrade for POI is unlikely in the near term. However, over the medium term, the rating could be upgraded if the company manages to broaden its market presence and improve diversification of its business portfolio while maintaining a combined ratio at below 90%. Contact: Primary Analyst Thomas Ng Analyst +65 6796 7224 Fitch Ratings Singapore Pte Ltd. 6 Temasek Boulevard #35-05 Suntec Tower Four Singapore 038986 Secondary Analyst Jeffrey Liew Senior Director +852 2263 9939 Committee Chairperson Harish Gohil Managing Director +44 20 3530 1257 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 on www.fitchratings.com Applicable criteria, 'Insurance Rating Methodology', dated 4 September 2014, are available at 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=978708 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.