A.M. Best has affirmed the financial strength rating of A (Excellent) and the long-term issuer credit rating of “a” of Energas Insurance (Energas), based in Malaysia.
The outlook of these credit ratings is stable.
The ratings reflect Energas’ balance sheet strength, which A.M. Best assessed as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management (ERM).
In addition, the ratings factor a neutral impact from the company’s 100 per cent ownership and integration with Petroliam Nasional Berhad (Petronas).
A.M. Best states that Energas’s risk-adjusted capitalisation remains at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), supported by Energas’ low underwriting leverage, conservative investment strategy and strong liquidity.
“Investment assets consist mainly of cash and deposits held at well-established domestic financial institutions, and investment-grade debt securities,” according to A.M. Best.
An offsetting factor is Energas’ high exposure to low frequency-high severity loss events given the nature of the company’s energy portfolio.
“Nonetheless, the significant underwriting risks are managed through the company’s low net retention and comprehensive reinsurance programs, which are placed with high quality reinsurers,” A.M. Best adds.
Despite the company’s history of volatile loss ratios, Energas has demonstrated a track record of strong underwriting performance as demonstrated by a favourable five-year average combined ratio of 53 per cent, between 2016 and 2020.
However, A.M. Best suggests that Energas may face a prospective decline in reinsurance commission income under a hardening reinsurance market, and a decrease in investment returns given the prolonged low interest rate environment.
Energas, which is a single-parent captive of Petronas, benefits from direct access to the group and comprehensive knowledge of its insurance risks, which effectively facilitate the company’s underwriting activities.
The rating firm suggests that the company’s portfolio is heavily concentrated by line of business and geography by being focused mainly on large energy risks in Malaysia.
On the back of the gradual recovery of the oil and gas industry, it is expected that Energas will grow its premium volume, driven by the group’s higher planned capital expenditures, as well as potential rise in premium rates for upstream and downstream business.
The company’s ERM framework is well-integrated into the group’s risk management function. A.M. Best considers Energas’ risk management capabilities to be appropriate for the company’s key risk profiles.
