AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” (Excellent) of Energas Insurance (L) Limited (Energas) (Malaysia).
The Credit Ratings (ratings) reflect Energas’ balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management. In addition, the ratings factor in a neutral impact from the parent of the company, Petroliam Nasional Berhad (Petronas), which is the national oil and gas company of Malaysia.
The revision of the outlooks to negative from stable reflect AM Best’s view of increasing pressure on Energas’ operating performance assessment. The company reported a consistent decline in earnings over recent periods as a result of weakening of its technical results due to elevated claims experience. In 2022, the company reported a combined ratio and return-on-equity ratio of 106% and 1.6%, respectively. Earnings remain supported by low management expenses, favourable reinsurance commission income and positive investment income.
The company’s balance sheet strength assessment is underpinned by its risk-adjusted capitalisation at the strongest level at year-end 2022, as measured by Best’s Capital Adequacy Ratio (BCAR). Capital adequacy is supported by the company’s low underwriting leverage and conservative investment strategy. An offsetting factor to the company’s balance sheet strength is its exposure to high severity loss events given its concentration to energy risks. This is, however, managed partly through the company’s low net premium retention and a comprehensive reinsurance programme, which is placed with a panel of reinsurers of high credit quality.
AM Best considers Energas’ business profile as neutral. As a single-parent captive to Petronas, Energas benefits from direct access to and in-depth knowledge of the group’s insurance risks, which have supported the company’s underwriting capability. Nevertheless, the company’s portfolio is concentrated heavily by line of business and geography, with a significant focus on large property and engineering risks located in Malaysia.
AM Best remains the leading rating agency of alternative risk transfer entities, with more than 200 such vehicles rated throughout the world. For current Best’s Credit Ratings and independent data on the captive and alternative risk transfer insurance market, please visit www.ambest.com/captive.
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Xin Ya Ong
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