Energas Insurance Limited (Energas) has had its outlook downgraded to negative, from stable, due to elevated claims, which have caused a consistent decline in earnings over recent periods. AM Best did maintain the captive insurer’s Financial Strength and Long-Term Issuer Credit (LTIC) Ratings, at A (Excellent) and “a” (Excellent) respectively, with its very strong balance sheet a key factor.
Company overview
Energas is a single-parent captive to Petroliam Nasional Berhad (Petronas), giving it direct insight into the group’s insurance needs and allowing it to tailor its underwriting services accordingly.
However, the company’s portfolio is concentrated heavily by lines of business and geography, with a significant focus on large property and engineering risks located within Malaysia. Overall, AM Best considers Energas’ business profile to be neutral.
Ratings maintained thanks to strength of balance sheet
AM Best has maintained Energas’s Financial Strength and LTIC ratings, based on the company’s very strong balance sheet strength. This is supported by a risk-adjusted capitalisation, which is at the strongest possible level when measured by Best’s Capital Adequacy Ratio (BCAR), and strengthened due to low underwriting leverage and conservative investment strategy.
Its earnings remain supported by low management expenses, favourable reinsurance commission income, and positive investment income-supported earnings. The affirmation of Energas’s Financial Strength and LTIC ratings also takes into account the neutral impact from the company’s parent, Petronas.
Outlook downgrade
However, Energas’s future outlooks have been revised to negative, from stable, due to increasing pressure on Energas’ operating performance. The company reported a combined ratio of 106% and a return-on-equity ratio of 1.6% in 2022, due to elevated claims. The company also has exposure to high-severity loss events due to its concentration in energy risks. This risk, however, is managed partly through low net premium retention and a comprehensive reinsurance programme.
Summary
Overall, Emergas has a very strong balance sheet, strong operating performance, neutral business profile and appropriate enterprise risk management. Despite this, the company has seen a steady decrease in its performance recently, and its concentration in energy risk has made it vulnerable to high-severity loss events. As a result, AM Best has predicted that the ratings of Emergas could decline in the future and has furnished the captive insurer with a negative Outlook accordingly.
