KUALA LUMPUR, Jan 30 – RAM Ratings has assigned a final long-term rating of AA3 to Hong Leong Assurance Bhd’s (HLA) proposed Subordinated Notes Programme of up to RM500 million.
Concurrently, the company’s respective long and short-term claims-paying ability (CPA) ratings of AA2 and P1 have been reaffirmed.
The ratings carry a stable outlook, MARC said in a statement today. It said the ratings reflect HLA’s established franchise in the life-insurance segment, the high persistency rate of its products, the company’s strong liquidity profile and ability to leverage on the distribution network of Hong Leong Bank Bhd (rated AA1/stable/P1 by RAM).
“HLA is the insurance arm of the larger Hong Leong Financial Group Bhd, and derives strong financial flexibility from the latter,” RAM said.
“Similar to its industry peers, however, HLA’s investment returns may face further pressure given the challenging investing environment,” it said.
RAM said the company’s ambition of expediting growth may entail a greater need to replenish its capital, given that it aims to keep its risk-based capital-adequacy ratio (CAR) above 200 per cent.
It said HLA has been maintaining a high persistency ratio (number of policies renewed during the year over number of in force policies) of over 90 per cent.
“It also has a strong liquidity profile, with sufficient liquid assets to cover its insurance liabilities as at end-June 2012,” RAM said.
“With the issuance of its proposed Subordinated Notes Programme, HLA’s financial leverage ratio may increase to 47 per cent (based on its shareholders’ funds as at end-June 2012) while its risk-based CAR may be boosted to about 212 per cent,” it said.
“Nonetheless, its tier-1 risk-based CAR will remain at 165 per cent given that the increased capital is to be funded by debt,” RAM added. – Bernama