Investment Highlights

• We maintain our BUY call on Allianz Malaysia (Allianz) with an unchanged fair value of RM17.50/share derived from SOP valuation. No changes to our estimates for now.

• Allianz recorded a net profit of RM63mil (-20.4% YoY) in 1Q21. Despite a stronger top line YoY, earnings decreased due to changes to fair value (RM45mil) in the group’s life business (Alliance Life) from higher interest rates. The surge in the 10-year MGS yield by 70bps to 3.3% in 1Q21 vs. end-4Q20 of 2.6% has resulted in higher fair value losses on ALIM’s investments.

• 1Q21 earnings were below expectation, making up 11.0% and 12.2% of our and consensus estimates respectively. Nevertheless, we expect earnings to improve in the quarters ahead as the surge in MGS yields following the steeper US Treasury yield curve that impacted the fair value of the life business segment in 1Q21 is unlikely to recur in the near term. Also, we are seeing a recovery in the life segment’s business activities.

• Group operating revenue grew by 8.2% YoY from higher gross earned premium (GEP) and investment income. Allianz’s combined ratio rose to 82.1% in 1Q21 (1Q20: 61.3%) attributed to changes to contractual liabilities from higher interest rates. Net claims were higher YoY. Meanwhile, commission and management expense ratios remained steady at 14.9% and 12.6% respectively.

• The group’s gross written premiums (GWP) growth continued to be strong at 8.8% YoY for 1Q21. This was supported by the higher premium growth of Allianz General (AGIC) and Allianz Life (ALIM).

• For 1Q21, AGIC’s GWP grew 7.0% YoY, outpacing the domestic general insurance industry’s +3.9% YoY. Its agency and franchise channels contributed 57.6% and 31.7% of the GWP respectively. Meanwhile, contribution to AGIC’s GWP from its partnership with Pos Malaysia was higher at 9.1% in 1Q21 vs. 8.8% in 1Q20. The market share for the general business segment remained steady at 13.3%.

• AGIC posted a stronger PBT (after consolidation adjustment) of RM92.6mil (+24.3% YoY), underpinned by higher net earned premium (+4.4 YoY%), lower management expenses and stable net claims which raised its underwriting profit. AGIC recorded an improved combined ratio of 90.5% (industry: 88.1%) largely due to lower claims ratio of 59.7%. Motor claims continued to be low due to MCO restrictions imposed in 1Q21 resulting in lesser traffic on the roads. Motor claims ratio was 58.8%, in line with the industry’s.

• Meanwhile, ALIM recorded a loss before tax of RM20.2mil in 1Q21 (1Q20: PBT of RM23.5mil) due to fair value losses from the higher interest rate. ALIM’s 1Q21 GWP grew by 10.3% YoY, supported by the increase in single (+2.2% YoY) and recurring premiums (+12.9% YoY). 1Q21 saw a strong improvement in annualized new business premium (ANP) to 39.1% YoY, surpassing the life insurance industry’s 29.0% YoY. This was driven by stronger growth in premiums from the agency (+66.4% YoY) and employee benefits channel (+17.6% YoY). In contrast, ANP for bancassurance contracted by 9.8% YoY compared to the industry’s +15.4% YoY. By product, ANP for investment linked grew 40.2% YoY.

• New business value for life business climbed 64.9% YoY to RM82.6mil in 1Q21. The improving ANP growth for life business is envisaged to gradually increase the embedded value of ALIM.

Source: AmInvest Research - 20 May 2021