Analyst calls ‘Buy’ on Allianz Malaysia

The company is backed by one of the world’s leading insurers, Allianz, which holds 85.2% of the local arm ICPS


ALLIANZ Malaysia Bhd remains a good investment, backed by the support from its parent Allianz SE, its solvency ratio and above-industry gross written premium (GWP) growth.

AmInvestment Bank Bhd has a ‘Buy’ call on the general and life insurance company with a fair value of RM17.40 per share. The share closed at RM13.86 last Friday.

The investment bank’s senior analyst Kelvin Ong noted that Allianz Malaysia’s financial backing is good and supported by one of the world’s leading insurers, Allianz, which holds 85.2% of the irredeemable convertible preference shares (ICPS) issued by the Malaysia arm.

“The parent company holds 65.22% in the ordinary shares of Allianz Malaysia.

“It reported a combined ratio of 95.5% and solvency ratio of 212% in 2019, while having received strong ratings of AA, AA3 and A+ with stable outlook from S&P Global Ratings, Moody’s Investors Service Inc and AM Best Co respectively,” Ong said.

In addition, the group’s number of outstanding ICPS stands at 169.3 million, with Allianz holding 144.2 million of the total.

“The current market capital of Allianz Malaysia based on ordinary shares is RM2.4 billion. Should the ICPS be converted to ordinary shares, this will lead to an increase in its market capital of close to RM5 billion,” he said.

Similarly, the overall group GWP grew by 7.3% year-on-year (YoY) for the first six months of the year (6M20), noting that it has expanded by an average of 4.4% based on the five-year compound annual growth rate.

“For 6M20, Allianz General Insurance Co (M) Bhd’s (AGIC) premiums grew 6.3% YoY, outpacing the domestic general insurance industry’s -3.1% YoY.

“Contributing to the strong AGIC premium growth was the commendable growth in motor premiums of 9.3% YoY from the tie-up with Pos Malaysia Bhd and fire insurance which grew 10.3% YoY,” he said.

Allianz Life Insurance (M) Bhd’s (ALIM) GWP also grew by 8.2% YoY versus the life insurance industry’s contraction of 12.6% YoY for the same period.

For its GWP, the group’s wholly owned subsidiaries AGIC contributed 44.4%, while ALIM posted 55.6%.

Ong noted that another investment case for Allianz Malaysia is based on its recovering annualised new premiums (ANPs) for the life insurance business from a weaker second quarter of this year (2Q20) when life policies selling activities were impacted by the Movement Control Order.

“This is followed by a strong market share in the general and life insurance businesses.

“Allianz Malaysia is the largest general insurer domestically with a 12.9% market share, ranking No 1 in motor insurance and No 5 in life insurance with a market share of 8% based on ANP,” he said in a note yesterday.

The group also has an improved combined ratio at 92.3% for 6M20 with lower motor and medical claims, reducing its net claims ratio, followed by a stable commission and management expense ratios.

The company also has a dividend policy of paying out at least 30% of its after tax profits.

“We project a dividend yield of 4.7% or 5% for the financial year of 2020 (FY21) or FY21,” he said.

Despite the challenging near- to medium-term environment due to the pandemic, he expects Allianz Malaysia’s strong market shares in motor, fire and life insurance to bode well for it.

“Its cost efficiency over the industry for expense ratio provides an advantage in pricing of general insurance products to withstand the intensity of market competition,” he said.

The six-month period saw an improved net profit after tax of RM247 million, which was up by 14.2% YoY, underpinned by an increase in net earned premiums by 7.4% YoY, higher investment income and lower net claims incurred.

The group recorded an improved underwriting margin of 7.7% with a lower combined ratio of 92.3% for 6M20 largely on the back of improved net claims ratio for the financial period, while management and commission expense ratios were kept stable, Ong noted in his report.

Key risk includes a further de-tariffication on fire insurance that will impact pricing on coverage for fire as the next phase of de-tariffication on fire premiums has been delayed to the end of 2021.

The group is exposed to interest-rate risk arising from its assets, which are higher than liabilities.

“Any increase in interest rates will lower both the group’s assets and liabilities resulting in fair value losses,” Ong said.

Other key risks include changes to regulatory requirements and accounting standards, as well as potential financial penalty from the authority as AGIC and 21 other general insurance companies have received notices from the Malaysia Competition Commission (MyCC) for infringing Section 4 of the Competition Act 2010. MyCC has imposed a financial penalty of RM18.5 million on AGIC.

“AGIC is currently in discussion with its legal advisors and will be defending its position. The impact to FY21 earnings is estimated to be 3.3%,” he said.