General Segment: 2H24 to be better than 1H24

Allianz's general business reported a lower PBT of 5.8% to RM248.5mn in 1H24, despite a higher gross written premium (GWP) of 15.2% to RM1.7bn. We gathered that the lower PBT was mainly due to higher claims from the fire and engineering (about six large cases) segment. As such, the claims ratio increased to 64.1% in 1H24 compared to 59.8% in 1H23. Generally, fire insurance is more profitable with a lower claims ratio. However, the claims experience is more volatile than that of motor businesses due to the propensity to significant losses and natural catastrophic events. Overall, Allianz's market share rose to 14.1% (vs. 13.4% in 6M23) as the group's GWP growth outperformed the industry by 5.7 pts.

Barring any unforeseen big claims/events in 2H24, we believe that Allianz’s general business earnings would improve on the back of resilient new car sales and stronger Ringgit. YTD, total industry volume (TIV) reached 462.1k units in July 2024, marking a 7.2% increase compared to the previous year. On top of that, growth would be driven by higher premiums, agency sales, data centres and second-hand car dealers.

Life Business to Continue Growing

To recap, Allianz’s life business posted a higher annualised net premium (ANP) of 38.9% and surpassed industry growth of 15.3% in 1H24. Growth is driven by all key distribution channels. Agency ANP improved by 26.5%, Bancassurance surged by 71.2%, and Employee Benefits increased by 12.9%. This has led to a higher market share of 11.2% in 6M24 (vs. 9.8% in FY23). Management shared that Allianz employee benefits grew weaker than the industry by 5.1 pts due to its aggressive repricing.

Moving forward, management will remain focused on sales of investment-linked products with protection rider, which provides higher margins and also caters to the demand for saving products. In addition, growth would be supported by agency recruitment and partnership expansion. Allianz has launched an agency transformation programme, namely, Kingmaker, targeting to double the agency sales force by 2028 (vs. c.4,700 agents in FY23).

Positive on Co-pay Health Insurance

Recently, Bank Negara Malaysia announced that insurers must offer consumers an option to purchase medical and health insurance products with the co-payment feature. This move is to address Malaysia’s high medical cost inflation of 12.6% in 2023 (vs. the global average of 5.6%) and provide consumers with more affordable options. Note that customers also have the option of renewing their existing medical insurance policies without the co-pay feature.

Currently, we gathered that a mere 3-5% of Allianz businesses have the co-pay feature as most of the customers still prefer cashless method. All in all, we expect co-pay to positively impact Allianz as claims would moderate downwards (despite the lower premium) due to the reduction of overtreatment.

Impact

No Change to Our FY24-26 Earnings Forecasts.

Valuation

We reiterate our Hold recommendation on Allianz with a TP of RM21.30/share based on SOP valuation.

Source: TA Research - 27 Aug 2024