Lanka Rating Agency upgrades Amana Takaful’s rating to BBB/P3/Stable
Thursday, 1 January 2015 00:00
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Lanka Rating Agency (LRA) has upgraded Amana Takaful Plc’s (ATL) long- and short-term claims-paying ability rating from BBB- and P3 to BBB and P3, respectively. The outlook on the long-term rating is to be stable.
The upgrade is premised on ATL’s improving performance, above-average general insurance underwriting performance and average capitalisation levels. Meanwhile, the ratings are tempered by the group’s small market share, its above-average claims ratios for life insurance and limited investment avenues owing to adherence to Shari’ah-compliant investments.
ATL made its debut in 2002, and is engaged in both life and general insurance. Currently it is the only composite takaful or non-conventional insurer in Sri Lanka. Amana Takaful also operates a sub-subsidiary Amana Takaful Maldives Plc (ATM) which was established in 2003.
Despite providing Shari’ah-compliant insurance services, the group also competes against conventional insurers with established track records. In terms of gross written premiums, ATL was 9th in the life segment and 13th in the general segment as at end-FY 2013.
While the group accounted for 1.88% of total industry GWPs as at end-FY Dec 2013 (FY December 2012 :1.79%), it is somewhat insulated from competition within the traditional insurance sphere given its sole presence in the takaful business.
The group’s improving general insurance underwriting performance is evidenced by its ability to maintain a better-than-industry claims ratio. The claims ratio stood at 52.55% as at end-FY December 2013. Improving from 55.35% from fiscal 2012 (Industry: 58.65%). The better ratio can also be attributed to the company’s more conservative retention policy.
Lanka Ratings considers ATL’s long-term insurance underwriting standards to be weighed down, reflected by the division’s claims ratio and lower net underwriting margins relative to peers, mainly owing to high surrenders and part withdrawals.
However, with the introduction of unit-linked life insurance policies, the company’s life GWPs grew at a higher pace than the industry, although driven by a small initial base. The group’s life GWPs grew 48.86% in FY December 2013, after having increased 14.74% y-o-y in FY December 2012.
This was mainly due to the group’s life products having been redesigned with more customer focus and the targeted marketing of products in line with renewed strategies. Within the investment portfolio government securities accounted for 22.22% of the company’s investments as at FY December 2013, while mudarabha deposits made up 45.53%. The rest of the portfolio consisted of investments in property, equity, unit trusts and gold.
While Shari’ah-compliant investment opportunities continue to remain limited, an investment income of Rs. 152.9 million (2012: Rs. 104.2 million) was realised by the group despite a significant decline in value of gold bullion and a lacklustre equity market.
The management’s decision to move its investments to fixed income-based assets helped to reduce the adverse effect brought on by a global fall in the bullion market.
The group reported its highest profit after tax of Rs. 157.86 million in FY December 2013 (FY December 2012: Rs. 120.12 million).
ATL’s overall underwriting performance was average in fiscal 2013, supported by both its general and life insurance segments amid a reducing trend in its claims ratio. On the other hand, the group held its expense ratio at 46.38% in FY December 2013 (FY 2012: 47.32%). The management intends to continue its drive on rationalising the expense ratio by focusing on improving productivity.
The company’s non-life solvency margin stood at 1.85 times in FY December 2013 reducing marginally from 1.89 as at end-December FY 2012. As a result of increased investments in mudarabha deposits and government securities, the solvency margin has been maintained at adequate levels. ATL’s life solvency margin reduced from 3.71 times at end-December 2012 to 2.02 times as at end-December 2013.
