OREANDA-NEWS. Fitch Ratings has affirmed the Insurer Financial Strength (IFS) ratings of the core insurance operating entities of the Etiqa group, namely Etiqa Insurance Berhad (EIB), Etiqa Takaful Berhad (ETB), and Etiqa Insurance Pte Ltd (EIPL) at 'A'. The Outlook is Stable.

KEY RATING DRIVERS
The ratings reflect the core operating entities' sound consolidated financial fundamentals, with sustained profitability. The ratings also consider the group's strong market franchise as one of the major insurance groups in Malaysia, with dominant market positions in Malaysia's insurance and takaful sectors. The agency believes that the entities' parent, Maybank Ageas Holdings Berhad (MAHB), is capable of providing capital support to its core operating entities if needed.

Based on Fitch's Insurance Rating Methodology, the agency views EIB, ETB and EIPL as core operating subsidiaries of MAHB, given the shared Etiqa branding, adaptation of the group's procedures and processes, as well as sharing of management and resources within the group. EIB, ETB and EIPL are 100% owned by MAHB.

EIB's capitalisation remained consistently strong, with its regulatory risk-based capital (RBC) ratio reaching 258% at end-March 2015, well in excess of the regulatory minimum of 130%. ETB's RBC ratio improved to 158% at end-March 2015 from 143.5% at end-2013. EIPL commenced its life business in August 2014, while the Singapore general business portfolio of EIB was successfully transferred to EIPL in April 2015 through a scheme of transfer.

Assets are concentrated in Malaysia, where the group primarily operates. At end-2014, more than 50% of its investments at the consolidated level were fixed-income investments, which originated largely from the Malaysian market.

The group's financial leverage ratio on a consolidated basis increased to 15.1% at end-2014 from about 10% at end-2013, as a result of the issuance of MYR500m of sub-debt by EIB in 2013, and MYR300m of Islamic bonds (sukuk) by ETB during 1H14. Despite the increase, the ratio remains commensurate with its current rating category.

Profitability is consistently healthy. On a consolidated basis, pre-tax return on assets amounted to 2.5% in 2014 (2013: 2.6%), and return on average equity was 11.9% in 2014 (2013: 13.2%).

RATING SENSITIVITIES
An upgrade could result from sustained improvements in the financial fundamentals of the core operating entities, including enhanced market presence/size coupled with sound profitability as well as strong capital levels commensurate with their business profile. However, Fitch views these developments as unlikely in the medium term.

Key rating triggers that could result in a downgrade include:

- change in EIB's, ETB's or EIPL's status as a core operating entity of the Etiqa Group
- deterioration in financial fundamentals of the core operating entities, say, a decrease in EIB's statutory RBC ratio to below 200% on a sustained basis, an increase in combined ratio for EIB's general insurance consistently above 105% (2014: 77.6%), sharp decline in EIB's lapse rates/mortality profits; a decrease in ETB's statutory RBC ratio to below 150% on a sustained basis, an increase in ETB's combined ratio for general takaful above 105% (2014: 83.4%) for a sustained period and material deterioration in lapse rates or mortality experiences of ETB's family takaful business
- an increase in MAHB's financial leverage on a consolidated basis to more than 30% for a prolonged period.