RAM Ratings reaffirms Etiqa Family Takaful’s AAA/Stable/P1 ratings

KUCHING: RAM Ratings has reaffirmed the AAA/Stable/ P1 insurer financial strength ( IFS) ratings of Etiqa Family Takaful Bhd ( Etiqa Family Takaful).

Concurrently, the AA1/Stable rating of EFTB’s RM300 million Subordinated Sukuk Musharakah ( 2014/2024) has been reaffirmed. The subordinated sukuk is rated one notch below EFTB’s long-term IFS rating to reflect its status as an unsecured and subordinated obligation of the Takaful Operator.

The ratings reflect EFTB’s strategic role as Maybank Ageas Holdings Bhd’s ( Maybank Ageas) family takaful arm and our expectation of ready support from the group, if needed.

“Notwithstanding a regulatory requirement that composite insurers and takaful operators legally segregate their operations into single-licence companies, the group’s operations remain holistically managed along business lines,” RAM said in a statement yesterday.

On January 1, 2018, the Takaful Operator’s general takaful business was transferred to Etiqa General Takaful Bhd. EFTB’s ratings also consider its sound capitalisation and ongoing distribution support and synergies through the network and customer base of its ultimate parent, Malayan Banking Bhd ( Maybank), the nation’s largest banking group.

Maybank Ageas has a strong market position as the largest domestic insurance group in Malaysia. In addition to a dominant position in general insurance and takaful, the Group ranks fourth in the combined life insurance and family takaful sector, with a combined new business market share of about 10 per cent.

Etiqa Family Takaful’s gross contributions grew 14 per cent to RM1.3 billion in the financial year ending December 2017 (FY17). Growth was driven by a 26 per cent increase in new business contributions, mainly single- contribution credit-related plans, which offset a 5 per cent contraction in in-force contributions due to maturing long-term education plans.

“Notwithstanding a better investment performance, operating profits of EFTB’s family fund fell 19 per cent to RM341 million in FY17, with additional reserves set aside to reflect business growth. Family fund investment yields were a better 5.9 per cent in FY17 as a result of equity gains.

Etiqa Family Takaful relies heavily on single- contribution credit-related and group family takaful products for new business generation. This stems primarily from its underwriting of mortgage term takaful products from Maybank. Such concentration renders Etiqa Family Takaful’s revenue susceptible to fluctuation.

That said, efforts to rebalance the takaful operator’s portfolio towards regular- contribution products have gained momentum. In FY17, these accounted for a larger 13 per cent of new business contributions.

As at end- January 2018, Etiqa Family Takaful’s regulatory capital adequacy ratio was 217 per cent, a level comfortably above its internal target capital level.