Investment Highlights

• We maintain our BUY call on Allianz Malaysia (Allianz) with a revised fair value of RM17.70/share (previously: RM17.50/share) derived from SOP valuation with a higher embedded value for the group’s life business. No changes to our earnings estimates.

• Allianz recorded a higher core net profit of RM185mil (+71.3% QoQ) in 2Q21. This was due to the recognition of fair value gains of RM49mil in 2Q21 vs. fair value losses of RM414mil in 1Q21. Yield movements for the 10-year MGS were more stable in 2Q21 in contrast to the steep increase in 1Q21. This has led to narrower fair value losses on investments for its life business under ALIM.

• Cumulatively, the group reported a 6M21 core net profit of RM294mil (+18.8% YoY) after stripping out provisions for potential claims from beneficiaries of deceased policyholders based on the listing provided by the National Registration Department (JPN) of RM85mil (1Q21: RM45mil and 2Q21: RM40mil).

• 6M21 core earnings were within expectations, making up 51.3% and 58.5% of our and consensus estimates respectively.

• Group operating revenue grew by 9.9% YoY for 6M21 supported by higher gross earned premium (GEP) and investment income. Allianz’s 6M21 combined ratio improved to 91.0% vs. 92.3% in 6M20 underpinned largely by lower commission and management expense ratios. Meanwhile, claims ratio for the group improved marginally to 63.7%.

• The group’s gross written premiums (GWP) growth continued to be strong at 8.6% YoY for 6M21. This was supported by the growth in premiums of Allianz General (AGIC) and ALIM.

• For 6M21, AGIC’s GWP rose 4.7% YoY and continued to outpace the domestic general insurance industry’s 4.0% YoY growth. 57.3% and 30.0% of GWP were contributed by its agency and franchise channel respectively. Contribution to AGIC’s GWP from its partnership with Pos Malaysia was 6.9% for 6M21. Market share for its general insurance business remained steady at 13.0%.

• AGIC posted a stronger PBT (after consolidation adjustment) of RM207.6mil (+7.1% YoY) underpinned by higher net earned premium (+9.3% YoY). AGIC recorded an improved combined ratio of 88.9% for 6M21 supported by lower commission and expense ratios. Motor claims ratio was lower at 51.6% vs. the industry’s 55.1%.

• Mobility restrictions for individuals are likely to be further eased for those fully vaccinated. This, coupled with the potential opening up of more economic sectors for states transitioning to stages 2 and 3 of the National Recovery Plan (NRP) with the adoption of the indicator of new Covid-19 cases with serious symptoms instead of new Covid- 19 cases, will see a normalization of motor claims ahead.

• Meanwhile, ALIM’s profitability turned around to a PBT of RM76.7mil compared to a loss before tax of RM20.2mil in 1Q21. Fair of value losses on investments from higher interest rates in 1Q21 narrowed with the steadier movement of MGS yields in 2Q21. ALIM’s 2Q21 GWP climbed by 14.6% YoY thanks to the increase in single (+3.0% YoY) and recurring premiums (+13.8% YoY).

• 2Q21 saw stronger business activity in the life business supported by annualized new business premium (ANP) growth of 50.0% YoY, surpassing the life insurance industry’s 33.7% YoY growth. This was driven by stronger growth in premiums from the agency (+61.0% YoY) and employee benefits channel (+17.6% YoY). Meanwhile, 6M21 saw ANP for bancassurance improving to 34.3% YoY from a negative growth in 1Q21, which outpaced the industry’s. Market share for its life business strengthened to 9.0% in 2Q21 compared to 8.8% in 1Q21. By product, ANP for the investment-linked segment grew 51.1% YoY with a stronger momentum from the agency channel.

• New business value for life business rose 72.2% YoY to RM146.5mil for 6M21. The improving ANP growth for life business is envisaged to gradually increase the embedded value of ALIM. The embedded value for life business has increased to RM3.3bil as of end-6M21 vs. RM3.0bil in FY20.

Source: AmInvest Research - 26 Aug 2021