SINGAPORE: AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” of Malaysia based Lonpac Insurance Bhd. The outlook of these Credit Ratings is stable.
The ratings reflect Lonpac’s balance sheet strength, which AM Best categorizes as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management (ERM).
Lonpac’s balance sheet strength is underpinned by risk-adjusted capitalization that remains at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). Despite an elevated dividend payout ratio over the past five years, the company has exhibited strong capital growth from retained earnings.
The company has a typically conservative investment strategy with a focus on cash and high-quality fixed interest securities, despite some concentration in invested assets to Malaysian financial institutions.
Furthermore, AM Best views Lonpac to have a moderate dependence on reinsurance to enable the underwriting of large single property and marine risks, as well as to manage aggregation and accumulation of exposure.
AM Best views Lonpac’s operating performance to be strong. The company has reported a five-year average return on equity ratio of 34.2% and combined ratio of 65.9% (2014-2018). A key driver of the technical profitability remains the company’s property and marine classes of business, which over number of years have benefited from low net loss experience and favorable reinsurance commission income.
Over the medium term, AM Best expects that the continued phased liberalization of pricing for motor and fire lines of business in Malaysia will likely drive lower underwriting profit margins. Nonetheless, the company continues to enhance its pricing and risk selection capabilities, as well as strengthen its distribution and product design; all aimed at maintaining strong underwriting and operating performance metrics.
AM Best views Lonpac’s business profile as neutral. The company is a mid-sized non-life insurer in Malaysia with a market share of approximately 8%, based on 2018 gross written premium (GWP). The majority of Lonpac’s business originates from Malaysia, with approximately 5% of 2018 GWP generated from Singapore via an offshore branch.
Lonpac continues to benefit from a long-standing relationship with Public Bank Berhad, which provides the company with preferential access to profitable property business through the banking channel. Despite slow premium growth in Malaysia’s non-life market over the past few years, the company has continued to increase its market share while maintaining good profitability.
AM Best views the company’s ERM approach as appropriate given the current size and complexity of its operations. Key risks are identified and measured on a frequent basis and managed in accordance with Bank Negara Malaysia’s Internal Capital Adequacy Assessment Process (ICAAP) requirement.