Stock Name: ALLIANZ
Company Name: ALLIANZ MALAYSIA BHD
Research House: RHB
Allianz Malaysia Bhd
(March 1, RM5.12)
Maintain market perform at RM5.05 with target price of RM5.34: Allianz is still in early stages of its planned acquisition of MNRB Holdings Bhd's Takaful Ikhlas arm. We understand that Allianz has not come to a decision with regards to the size of the stake that it is acquiring, much less the valuation. However, we expect a follow-up announcement within the next two months on the progress of the acquisition.
We maintain our view that assuming a deal does go through, it will be beneficial to both parties as Allianz could broaden its product offering with the inclusion of Takaful products, while MNRB could broaden its distribution channel for its Takaful Ikhlas products by leveraging on Allianz's agency force, which we understand numbers more than 8,000. As at Dec 31, 2010, the size of Takaful Ikhlas' family fund was RM850 million, while its general takaful fund was at RM85 million, with combined revenues of RM147 million as at 3QFY11.
Management confirmed the recent news in the media of the complete removal of motor tariffs although we understand that, as of now, there has been no confirmation of exactly how much the tariff will be reduced per year.
However, the company stresses that it will be gradual and Bank Negara Malaysia will most likely consider the financial impact on the man in the street before making any drastic decisions. Thus, any significant improvements in claims ratio will not be seen immediately in 2012, in our view.
Furthermore, management did not rule out the possibility of a de-tariffing exercise for the fire business, which in contrast to the motor business, is highly profitable due to its low claims ratio of 20% to 30% (motor average industry claims ratio is more than 100%).
If this were to happen, we believe overall industry claims ratio will be roughly similar to current levels of 65% to 80%. We are nonetheless keeping our claims ratio assumption at 60% for FY11 to FY13, pending further clarification on the matter. Also note that this will mean that the previous proposal by Bank Negara is no longer applicable.
In 2010, Allianz's general insurance gross written premiums grew 10.1% year-on-year (y-o-y) in line with our estimate of 10%. Almost half of the gross premiums (49%) came from motor policies, followed by fire (20%) and the rest was fragmented among other businesses.
Life insurance gross written premiums (GWP) grew by 18.5% y-o-y to RM1.03 billion in 2010 against RM870 million in 2009, mainly helped by recurring premiums which include long-term and retirement business. Single-premium business, which made up 14.4% of total GWP, actually declined y-o-y by 0.6%.
The risks to Allianz's performance include lower than expected premium growth, jump in claims ratios, intense competition from insurance sector liberalisation and a change in Bank negara policy that will require Allianz to increase its internal capital adequacy ratio in compliance with risk-based capital requirements.
We are leaving our forecasts and assumptions unchanged. We are also maintaining our 'market perform' call on the stock, and our sum-of-parts-derived fair value is unchanged at RM5.34 a share. ' RHB Research, March 1
This article appeared in The Edge Financial Daily, March 2, 2011.
Company Name: ALLIANZ MALAYSIA BHD
Research House: RHB
Allianz Malaysia Bhd
(March 1, RM5.12)
Maintain market perform at RM5.05 with target price of RM5.34: Allianz is still in early stages of its planned acquisition of MNRB Holdings Bhd's Takaful Ikhlas arm. We understand that Allianz has not come to a decision with regards to the size of the stake that it is acquiring, much less the valuation. However, we expect a follow-up announcement within the next two months on the progress of the acquisition.
We maintain our view that assuming a deal does go through, it will be beneficial to both parties as Allianz could broaden its product offering with the inclusion of Takaful products, while MNRB could broaden its distribution channel for its Takaful Ikhlas products by leveraging on Allianz's agency force, which we understand numbers more than 8,000. As at Dec 31, 2010, the size of Takaful Ikhlas' family fund was RM850 million, while its general takaful fund was at RM85 million, with combined revenues of RM147 million as at 3QFY11.
Management confirmed the recent news in the media of the complete removal of motor tariffs although we understand that, as of now, there has been no confirmation of exactly how much the tariff will be reduced per year.
However, the company stresses that it will be gradual and Bank Negara Malaysia will most likely consider the financial impact on the man in the street before making any drastic decisions. Thus, any significant improvements in claims ratio will not be seen immediately in 2012, in our view.
Furthermore, management did not rule out the possibility of a de-tariffing exercise for the fire business, which in contrast to the motor business, is highly profitable due to its low claims ratio of 20% to 30% (motor average industry claims ratio is more than 100%).
If this were to happen, we believe overall industry claims ratio will be roughly similar to current levels of 65% to 80%. We are nonetheless keeping our claims ratio assumption at 60% for FY11 to FY13, pending further clarification on the matter. Also note that this will mean that the previous proposal by Bank Negara is no longer applicable.
In 2010, Allianz's general insurance gross written premiums grew 10.1% year-on-year (y-o-y) in line with our estimate of 10%. Almost half of the gross premiums (49%) came from motor policies, followed by fire (20%) and the rest was fragmented among other businesses.
Life insurance gross written premiums (GWP) grew by 18.5% y-o-y to RM1.03 billion in 2010 against RM870 million in 2009, mainly helped by recurring premiums which include long-term and retirement business. Single-premium business, which made up 14.4% of total GWP, actually declined y-o-y by 0.6%.
The risks to Allianz's performance include lower than expected premium growth, jump in claims ratios, intense competition from insurance sector liberalisation and a change in Bank negara policy that will require Allianz to increase its internal capital adequacy ratio in compliance with risk-based capital requirements.
We are leaving our forecasts and assumptions unchanged. We are also maintaining our 'market perform' call on the stock, and our sum-of-parts-derived fair value is unchanged at RM5.34 a share. ' RHB Research, March 1
This article appeared in The Edge Financial Daily, March 2, 2011.
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