Investment Highlights

• We maintain our BUY call on Allianz Malaysia (Allianz) with with an unchanged fair value of RM17.40/share derived from SOP valuation (Exhibit 2). No changes to our forecast.
• 3Q20 net profit came in at RM129mil (-23.1% QoQ). The lower earnings compared to the preceding quarter were due to lower fair value gains on financial instruments, coupled with higher commission and management expenses. 9M20 saw an improved net profit after tax of RM376mil (+4.7% YoY). The stronger earnings were underpinned by higher net earned premiums (+8.2% YoY) and lower net claims incurred, partially offset by lower investment and other income. Cumulative earnings were within expectations, making up 74.3% and 79.6% of our and consensus estimates respectively.
• Allianz recorded an improved underwriting margin of 1.6% with a lower combined ratio of 98.4% for 9M20 largely on the back of improved net claims ratio for the financial period.
• Management and commission expense ratio were steady at 12.9% and 15.3% respectively for 9M20. Meanwhile, net claims ratio improved to 70.2% in 9M20 compared to 82.6% in 9M19. Lower motor claims for general insurance business during the MCO, a decline in medical claims and higher NEP have contributed to the improved claims ratio at group level.
• The group’s gross written premiums (GWP) grew by 8.7% YoY. For 9M20, Alliance General’s (AGIC) GWP expanded by 9.2% YoY, outpacing the domestic general insurance industry’s -0.9% YoY. Contributing to the strong AGIC premium growth was the commendable growth in motor premiums supported by its tie-up with Pos Malaysia.
• 9M20 saw AGIC posting a stronger PBT (after consolidation adjustment) of RM301.6mil (+24.3% YoY) underpinned by a net earned premium growth of 8.7% YoY and improved underwriting profit due to lower motor claims with less traffic during MCO.
• Meanwhile, Allianz Life’s (ALIM) PBT (after consolidation adjustment) was lower at RM254.1mil (-5.2% YoY) due to fair value losses from changes in interest rates. ALIM’s 9M20 GWP grew by a commendable 8.2% YoY. Although annualized new business premium (ANP) contracted by 11.9% YoY vs. the life insurance industry’s contraction of 7.0% YoY for 9M20, selling activities from the agency channel for life insurance improved in 3Q20 compared to 2Q20 from the easing of MCO restrictions. Also, 3Q20 saw a pick-up in ANP for bancassurance and employee benefits resulting in a lower contraction for the overall life business’ ANP in 9M20 vs. 6M20.

Source: AmInvest Research - 27 Nov 2020