At  Allianz’s 3Q14 briefing  yesterday, we met with the new CEO of  life insurance  and  gathered  business  updates.  Maintain  BUY  and SOP-based TP of MYR13.50 (12% upside).  Allianz  retains  its view  of a challenging  environment  ahead  but expects  its strategies to sustain  its above-industry  growth.  Its  key  targets,  namely  10,000  life  agents  by FY15 and a <90% non-life combined ratio, are still intact.

General insurance (GI) takeaways. Allianz General Insurance’s (AGIC)gross premium growth of 8% was above the GI industry’s 5.1% in 9M14, which roughly equated  to MYR630m new premiums. The above-industry growth was partly attributed to its  ability to  capture market share in the new  vehicle  segment.  Its  combined  ratio  of  86.3%  was  below  the industry’s 88.0%, due to its  superior track record of  17.6% expense ratio (industry: 20.4%),  while  its 58.9% claims ratio remained  intact (industry: 57.2%).  This  reflects  AGIC’s long-term strategy amid  its expectations of a challenging retail environment  –  ie  resuming its retention strategies  to keep high net premium growth as well as  cost control  ahead of  the detariffication environment in 2016. In the near  term, AGIC retains its view of  a  lacklustre  industry’s  premium  growth  –  below  the  average  1.2x  of GDP growth  –  due  to the challenging environment, slow growth in motor industry and a change in consumption  pattern amid  cautious spending. We  note  that  the  industry’s  9M14  growth  of  5.1%  was  below  1H14’s6.8%.

Life insurance (LI) takeaways.  We met with Mr Rangam Bir, who was appointed  the  new  CEO  of  Allianz  Life  Insurance  Management  (ALIM)since  4  Nov.  ALIM  remains  focused  on  boosting  its  agency  force  to10,000  by FY15 (vs  7,088  currently),  although  the number of  productive life  agents  remains  unchanged  at  2,000-2,500.  YTD,  Allianz  saw commendable  performance  in  its  agency  investment-linked  (19.7%  vs industry’s  9.1%)  and  bancassurance  products  (160%  vs  industry’s 17.7%). However,  agency traditional business lost market share (-42.4% growth  vs  industry’s  -8.4%)  due  to  ALIM’s  focus  on  investment-linked portfolio. A continued effort to re-price its medical premiums, which partly aided the boost in renewal premium in its 3Q14 results, should continue to  boost  its  LI  performance.  Also,  any  fair  value  losses  in  investment would be mostly offset  by a release in reserves  on contract liabilities,  as was the case for the fair value gain recognised in 3Q14.

Maintain earnings forecasts, BUY  call  and MYR13.50  TP.  Please see page  2  for  our  assumptions.  Our  FY15-16  earnings  estimates  have factored  in  moderated  premium  growth,  potential  cost  upside  and infrastructure  upgrades  for  ALIM  to  meet  its  agency  target .  We  like AGIC’s  leading  market  position  (12.4%  GI  market  share)  and  Allianz’slong-term strategies. 

Source: RHB