A.M. Best Co. has assigned a financial strength rating of B++ (Very Good) to Malayan Insurance Company Inc. (MICO) (Philippines). The outlook is stable.
The rating reflects MICO’s excellent capitalization, leading market position and stable income supported by strong investment performance. The rating also recognizes the extensive reinsurance program with financially strong reinsurers.
MICO’s capital position as of fiscal year 2003 is PHP 3.6 billion (USD 65 million), which is 43% of the total assets, and the net leverage ratio of the company is 0.36 times. Risk-based capitalization, as measured by Best’s Capital Adequacy Ratio, has been above 160% for the last five years. Also supporting capitalization is the extensive reinsurance protection of the company. As of fiscal year 2003, MICO reinsures 88% of its fire business through the usage of international brokers.
MICO was founded in 1930, and for the last 33 years, it ranked number one in terms of written premium in the Philippines non-life market. The company has a premium market share of 12% in the Philippines non-life industry, which includes over 100 non-life companies. MICO is the flagship company of Yuchengco Group of Companies (YGC), which is a financial conglomerate in the Philippines. MICO has joint venture subsidiaries with internationally renowned companies such as Tokio Marine Nichido Insurance Company and Zurich Insurance Company.
As MICO’s risk retention is low, investment income plays an important role in generating a stable income for the company. Other than the equity investments, most assets are invested in USD fixed income instruments including USD-denominated Philippines treasury bonds.
Offsetting these positive attributes are the relatively high sovereign risk, stagnant non-life market environment, poor underwriting income and the expected deterioration of risk-based capitalization in the future.
The Philippines non-life industry measured in terms of USD showed no growth during the last ten years. Furthermore, the non-life insurance premium per capita in USD decreased during this period. The market as a whole is becoming more competitive with the same number of players striving to maintain their market shares.
Within the marketplace, non-life insurance companies that are closely tied to bank or life insurance companies are emerging with various alternative distribution channels. These developments would directly challenge MICO to maintain its leading market position in the future. However, it could be viewed as an opportunity for the company to further develop stronger business relationships with its sister companies that are involved in the banking and life insurance businesses.
As MICO intends to retain more retail business and targets to achieve higher market share, its risk-based capitalization is expected to continue to weaken. A.M. Best will closely monitor this development to ensure its ongoing capitalization is commensurate with the rating assigned.
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