Malaysia’s Lonpac Insurance Bhd (Lonpac) may experience constrained underwriting margins over the near to medium term, due to the elevated cost of reinsurance, and ongoing phased liberalisation of motor and fire insurance pricing, says AM Best.
The ratings agency made the comments on Thursday while affirming Lonpac’s Financial Strength Rating of “A” (Excellent) and Long-Term Issuer Credit Rating of “a” (Excellent), with a stable outlook.
Low net loss experience and favourable reinsurance commission income, as well as investment returns, remain key drivers of technical profitability, the ratings agency added, benefitting underwriting margins for property and bond classes of business in particular.
And while insurance costs and liberalisation of motor and fire lines may constrain underwriting results, AM continues to assess Lonpac’s operating performance as strong and supported by “robust underwriting results”. The insurer’s conservative investment portfolio is focused on cash, bonds and debt-focused unit trust funds, the ratings agency added.
Lonpac’s balance sheet strength is supported by risk-adjusted capitalisation, which was at the strongest level at year-end 2023, as measured by Best’s Capital Adequacy Ratio (BCAR), which is projected to remain at this level over the near to medium term. The insurer has also gained strong capital growth from retained earnings, supported by a high dividend payout ratio over the given period.
Lonpac is a medium-sized non-life insurer in Malaysia, accounting for approximately 7% of the market share, based on the 2023 gross written premium. Lonpac’s underwriting portfolio is diversified moderately by line of business, albeit with the majority of businesses coming from Malaysia.
The company also benefits from a long-standing relationship with Public Bank Berhad (PBC), which provides Lonpac with preferential access to profitable property business through the banking channel.
In December 2024, PBC bought a 44.15% stake in Lonpac’s parent LPI Capital Bhd (LPI) from the estate of late founder Tan Sri Teh Hong Piow and Consolidated Teh Holdings Sdn Bhd, making it the largest shareholder. The transfer of shares will create a neutral impact on the credit rating fundamentals for Lonpac, according to AM Best.
AM also notes that the company has a moderate dependence on third-party reinsurance to support underwriting of large-limit risks and management of catastrophe exposures.
