HONG KONG--(BUSINESS WIRE)-- A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and the issuer credit rating of “a-” of Lonpac Insurance Bhd (Lonpac) (Malaysia). The outlook of both ratings is stable.
The rating affirmations reflect the good market profile of Lonpac, its strong liquidity and consistently stable operating performance. The ratings also recognize the strong risk culture of Lonpac and its strengthened risk-adjusted capitalization.
While operating in two competitive markets (Malaysia and Singapore), Lonpac has been able to gain market share in Malaysia and simultaneously maintain an overall favorable operating performance. The underwriting results of the Singaporean operation have turned around for fiscal year 2011 with the change in the company’s portfolio.
The stable operating performance is attributable to the quality of Lonpac’s underwriting book, its efficiency and productivity, risk culture and prudent investment policy. Lonpac primarily invests in cash and cash equivalents and security bonds, which supports the company’s stable investment income and strong liquidity.
Offsetting these positive rating factors are Lonpac’s projected decreasing trend in its capital position and the competitive landscape in its operating markets.
The financial strength of Lonpac strengthened for fiscal year 2011, with the capital injection of MYR 100 million from its parent company, LPI Capital Berhad (LPI Capital), in May 2011. However, Lonpac’s capitalization is expected to decrease steadily under its planned aggressive premium growth and high dividend payout.
With the market liberalization in Malaysia, A.M. Best remains cautious going forward about the impact of the consolidation and the intensified competition on the company’s operating margin and return on equity.
Key factors that could lead to positive movement in Lonpac’s ratings include (at a minimum) stable risk-adjusted capitalization and operating results.
Negative rating factors would include a significant deterioration in the company’s financial strength on a risk-adjusted basis, which would fall short of A.M. Best’s expectations.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Understanding Universal BCAR”; “Catastrophe Analysis in A.M. Best Ratings”; “Evaluating Country Risk”; “Rating Members of Insurance Groups”; “Risk Management and the Rating Process for Insurance Companies.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
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A.M. Best Co.
Arina Tek, +852-2827-3424
Senior Financial Analyst
Moungmo Lee, +852-2827-3402
Rachelle Morrow, +(1) 908-439-2200, ext. 5378
Senior Manager, Public Relations
Jim Peavy, +(1) 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
Source: A.M. Best Co.