Investment Highlights

• We maintain BUY on Allianz Malaysia (Allianz) with a revised fair value of RM17.80/share from RM17.70/share. This is based on SOP valuation after factoring in higher embedded value for the group’s life business.

• Our core earnings estimates for FY22/23 have been adjusted lower by 8.5%9.9%. This is after penciling in further fair value losses on investments based on expectations of higher interest rates moving forward.

• The stock remains deeply undervalued based on a P/BV of 0.5x for FY22.

• The group recorded an improved core net profit of RM175mil (+14.7% QoQ) in 4Q21. This was attributable to higher net earned premium (NEP) and lower net claims.

• Cumulatively, the group reported a 12M21 core net profit of RM613mil (+11.3% YoY) after stripping out provisions for potential claims from beneficiaries of deceased policyholders based on the listing provided by the National Registration Department (JPN) totalling RM83.5mil and conservative provisions taken for Covid mortality of RM93.5mil.

• 12M21 core earnings were slightly above our expectation. It made up 106.9% of our estimate. Meanwhile, the group’s underlying earnings exceeded consensus projection, accounting for 128.9% of street’s forecast.

• Group operating revenue grew 8.2% YoY for 12M21, supported by higher gross earned premium (GEP) and investment income. Allianz’s 12M21 combined ratio improved to 95.2% vs. 100.9% in 12M20 underpinned largely by lower claims and commission expense ratios. 12M21 saw a decline in the group’s claims ratio to 67.7%.

• Gross written premiums (GWP) growth picked up pace in 4Q21 after selling activities of its general and life insurance business were impacted in 3Q21 from lockdowns. Allianz’s GWP growth accelerated to 7.2% YoY for 12M21 vs. 4.3% YoY for 9M21.

• For 12M21, the general insurance business under AGIC’s GWP expanded by 3.2% YoY, supported by the motor and engineering business. 
  It surpassed the domestic general insurance industry’s 2.7% YoY growth. Its agency and franchise channels contributed 55.4% and 27.9% of the GWP respectively. Contribution to AGIC’s GWP from its partnership with Pos Malaysia was 6.5% for 12M21 (12M20: 7.0%). Market share for the general insurance business remained robust at 13.3%.
• AGIC posted a stronger PBT (after consolidation adjustment) of RM437.2mil (+1.2% YoY), underpinned by higher net earned premium (+4.8% YoY) partially offset by higher net claims. Underwriting profit for the general insurance business rose by 9.1% YoY for 12M21. AGIC recorded an improved combined ratio of 87.9% for 12M21, supported by lower commission and expense ratios. Motor claims ratio of 53.0% remained lower than the general insurance industry’s 55.6%.
• Meanwhile, PBT of the life insurance business under ALIM of RM132.4mil declined by 28.6% YoY for 12M21 largely due to fair value losses on investments from higher interest rates and higher claims provisions. Its 12M21 GWP registered a growth of 10.5% YoY, contributed by all key distribution channels.

• Annualized new business premium (ANP) for life business expanded by 32.9% YoY for 12M21 contributed in part by the lower base in FY20. It surpassed the life insurance industry’s 13.1% YoY growth. This was supported by growth in premiums from the agency (+27.8% YoY) and bancassurance (+41.4% YoY). The group continues to focus on growing higher margin investment-linked products with protection riders. As a result, ANP for investment linked expanded strongly by 65.5% YoY. New business value for the life business grew by RM275.2mil (+15.1% YoY). Market share for life business expanded to 9.0% in 12M21 vs. 7.7% in 12M20.

• The group has provided for the full impact for the recent floods which occurred towards the end of 4Q21. We gather that the exposure to flood claims has been conservatively estimated at RM250mil. However, due to reinsurance coverage to mitigate the claims, the net impact to the group’s earnings will be manageable at RM40–45mil.

• The increase in new premiums for life business is expected to continue lifting the embedded value of ALIM higher gradually. As at the end of 4Q21, the embedded value for the life business has increased to RM3.5bil vs. RM3.3bil in 2Q21.

Source: AmInvest Research - 23 Feb 2022