(The following was released by the rating agency)
SINGAPORE, March 01 (Fitch) Fitch Ratings has affirmed HSBC Amanah Takaful (Malaysia) Sdn Bhd's (HSBCAT) Insurer Financial Strength (IFS) rating at 'A-' with Stable Outlook.
The rating reflects continuing parental support from HSBC Holdings Plc ('AA'/Stable), given HSBCAT's important complementary role in the insurance franchise of the HSBC Group. HSBCAT benefits from its parent's widely recognised brand name, product and distribution capabilities, as well as other management resources. The rating also incorporates HSBCAT's conservative investment mix, sound capitalisation, and prudent management.
On the other hand, the rating is constrained by the takaful operator's limited track record, modest size, amid intensive market competition. Additionally, the company is challenged to manage its expenses appropriately as it builds up its business portfolio.
The Stable Outlook reflects Fitch's view that the company is likely to continue with its prudent underwriting approach and maintain overall sound financial fundamentals as it expands its business.
HSBCAT's investments reside mostly in fixed-income instruments, as well as cash and fixed deposits. Based on preliminary estimates, at end-2011, 17% of its total invested assets on an aggregate basis were allocated to cash and bank deposits, while 81% resided in fixed income instruments. Fitch views this investment strategy, which places principal protection before return maximisation, as prudent. Nevertheless, Fitch notes that it is important for HSCAT to maintain its capital levels commensurate with its portfolio, as it grows its business.
Fitch may consider positive rating action if HSBCAT's operating performance improves on a sustained basis, and/or if capital increases relative to business growth. Conversely, negative rating action may result from unexpected significant deterioration in its financial performance, for example, with liquid assets to policyholder liabilities falling below 45% and takaful funds registering net losses for an extended period.
HSBCAT's rating is assigned with less than five years of audited information available.
HSBCAT was incorporated in 2006 as a composite takaful operator. Takaful is a form of financial protection, similar to insurance. Unlike conventional insurance, Takaful contracts must comply with Islamic principles. At present, the company is 49%-owned by HSBC Insurance (Asia-Pacific) Holdings Ltd, 31% by Jerneh Asia Bhd and 20% by the Employees Provident Fund Board. HSBCAT's key products include retirement protection, homeowner takaful, mortgage life and investment-linked plans.