SINGAPORE, December 02, 2021--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of "a" (Excellent) of Lonpac Insurance Bhd (Lonpac) (Malaysia). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Lonpac’s 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).
Lonpac’s balance sheet strength is underpinned by its risk-adjusted capitalisation that remains at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). Despite a high dividend payout ratio over the past five years (2016-2020), the company has demonstrated strong capital growth from retained earnings. The company has a typically conservative investment strategy with a focus on cash, unit trust funds and high-quality fixed interest securities. Investment exhibits an increasing allocation to unit trust funds, which comprise mostly of corporate and government bonds. Lonpac is viewed to have a moderate dependence on third-party reinsurance to enable the underwriting of large limit risks, and to manage catastrophe exposure accumulation. The balance sheet strength assessment also factors in a neutral holding company impact following an evaluation of the financial strength of Lonpac’s ultimate parent, LPI Capital Bhd, with Lonpac accounting for the a majority of operations at the consolidated parent level.
AM Best assesses the company’s operating performance as strong. Lonpac has generated a five-year average return-on-equity ratio of 33.6% and combined ratio of 66.5% (2016-2020). In 2020, the company’s combined ratio improved, driven by movement restrictions within the country during the COVID-19 pandemic which led to lower loss ratios for some lines of business. The company’s property and marine classes of business, which have benefited from low net loss experience and favourable reinsurance commission income over a number of years, remain the key drivers of technical profitability. Investment returns continue to contribute positively to overall earnings, with a five-year average net investment return (including gains/losses) of 3.5% (2016-2020). Prospectively, the company is expected to face a challenging operating environment arising from the on-going COVID-19 pandemic, as well as the phased liberalisation of motor and fire insurance pricing in Malaysia. Nonetheless, AM Best expects the company to maintain strong underwriting and operating performance over the medium term, supported by its disciplined underwriting approach.
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 2020 gross direct premium. The majority of Lonpac’s business originates from Malaysia, with a small portion of premium 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.
AM Best considers Lonpac’s ERM approach as appropriate given the size and complexity of its operations. The company has a risk management and internal control framework to identify, evaluate and manage key risks on a frequent basis.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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