16 May 2022Asia analysis

AM Best affirms ratings of Energas Insurance

AM Best has affirmed the financial strength rating of A and the long-term issuer credit rating of “a” of Energas Insurance in Malaysia.

The outlook of these credit ratings is stable.

AM Best said that the ratings reflect Energas’ balance sheet strength, which it assesses as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.

The ratings also factor a neutral impact from the parent of the company, Petroliam Nasional Berhad (Petronas), which is the national oil and gas company of Malaysia.

The company’s risk-adjusted capitalisation remains at the strongest level, as measured by Best’s Capital Adequacy Ratio, supported by Energas’ low underwriting leverage and conservative investment strategy. Investment assets consist mostly of cash and deposits held at well-established domestic financial institutions, as well as investment-grade debt securities.

However, an offsetting balance sheet strength factor is Energas’ exposure to high severity loss events given the company’s concentration to energy risks. This is partly managed through the company’s low net premium retention and comprehensive reinsurance programmes, which are placed with a panel of reinsurers of high credit quality.

AM Best said that: “Energas has demonstrated a track record of strong operating performance, as evidenced by favourable five-year average combined ratio of 66% (2017-2021). Despite the company’s history of volatile loss ratios, the company’s management expense ratio has been consistently low, while robust reinsurance commission income has offset acquisition costs and contributed significantly to underwriting profits. The company’s operating performance remains supported by its investment income; however, in 2021, the company reported a decline in investment return largely driven by the low interest rate environment in Malaysia.”

It added that as a single-parent captive to Petronas, Energas benefits from direct access to and in-depth knowledge of the group’s insurance risks, which have supported the company’s underwriting capability. Nevertheless, the company’s portfolio is concentrated heavily by line of business and geography, with a significant focus on large energy risks in Malaysia.