[RAM] RAM Ratings reaffirms Hong Leong Assurance's AA2 rating

RAM Ratings has reaffirmed Hong Leong Assurance’s (HLA or the Insurer) AA2/Stable/P1 insurer financial strength (IFS) ratings. Concurrently, we have reaffirmed the AA3/Stable rating of its RM2.0 billion Subordinated Notes Programme (2020/-) (the Programme). The one notch difference between HLA’s long-term IFS rating and the rating of the Programme reflects the status of the notes as unsecured and subordinated obligations of the Insurer. 

With circa an 11% market share of the industry’s weighted new business (NB) premiums in 2020, HLA is the fourth-largest life insurer in Malaysia. Anchored by its agency force and access to the branch network of its sister company – Hong Leong Bank Berhad –the Insurer boasts strong distribution capabilities. By virtue of its relative speed in harnessing the pent-up demand as lockdown measures were eased in June 2020, HLA’s weighted NB premiums augmented by 29.9% (FY June 2020: 3.3%) to RM753 mil over the course of FY June 2021. 

Regular-premium policies constituted the lion’s share of NB premiums. By product mix, investment-linked (IL) policies accounted for 87% of NB premiums while the contribution from participating plans was small at 4%. IL plans remain the Insurer’s emphasis in driving future NB growth given the earnings stability and capital efficiency that they afford.

Backed by robust NB growth and the improved persistency of in-force premiums, HLA’s gross premiums were higher at RM3.1 bil in FY June 2021 (FY June 2020: RM2.8 bil). This, alongside greater fair value gain on equities and lower actuarial provisioning as a result of increasing Malaysian Government Securities rates, propelled the Insurer’s pre-tax profit for the fiscal year to a record RM316 mil (FY June 2020: RM185 mil). Higher bond yields however led to fair value losses on HLA’s fixed income portfolio and a lower overall investment return in the same period. Persistent upticks in bond yields and the levy of Cukai Makmur (or prosperity tax) might affect its bottom line in FY June 2022 but ongoing economic recovery could sustain premiums growth and support earnings. 

HLA raised some RM300 mil under the Programme in December 2020, which has significantly shored up its capital adequacy ratio. Its capitalisation is expected to remain adequate in face of lingering risks from Covid-19. HLA’s liquid assets amounted to RM14.6 bil or 0.9 times its net insurance contract liabilities as at end-June 2021, providing a sufficient buffer to meet liquidity needs from potential claims. 


Analytical contacts
Timothy Goh
(603) 3385 2496
timothy@ram.com.my

Sophia Lee
(603) 3385 2619
sophia@ram.com.my