KUALA LUMPUR: RAM Rating Services Bhd downgraded the standalone ratings of MAA HOLDINGS BHD []'s RM200 million debt notes and maintained the negative outlook on the long-term rating.
The ratings agency said on Tuesday, Oct 5 the rating of the RM200 million commercial papers/medium-term notes (CP/MTN) under its CP/MTN programme (2007/2014), was lowered from BBB3/P3 to BB3/NP.
'The rating downgrade reflects the weakened business profile of its core subsidiary, Malaysian Assurance Alliance Bhd (MAA Assurance or the company),' it said.
RAM said MAA Assurance's life-insurance business has been declining in the last three years due to the shift in its product strategy and strong competition from larger players.
The company's life-insurance business franchise has weakened significantly, as evinced by the drop in its market share, from 12.6% of total new business premiums in 2008 to 8.7% in 2009.
The long-drawn-out negotiations with potential acquirers of MAA Assurance, which started in late 2007, have also taken a toll on its business growth.
In FY December 2009, MAA Assurance posted underwriting deficits of RM216.0 million (before changes in policy reserves) and RM15.0 million, respectively, for its life- and general-insurance businesses.
After investment income and capital gain, the company's life- and general-insurance businesses recorded surplus after taxation of RM183.2 million and RM22.8 million, respectively, during the same period.
As a regulated entity under Bank Negara's purview, MAA Assurance's capital reserves are not sufficient under the newly implemented Risk-Based Capital (RBC) Framework.
The central bank had given MAA Assurance until March 2011 to comply with the minimum capital-adequacy requirement; this includes the partial or full sale of its life- and general-insurance businesses.
Meanwhile, MAA Assurance initially recorded a shortfall in the value of assets over liabilities including long-term policy liabilities, in its Life Participating (Life Par) Fund and Life Annuity Fund as at end-December 2009, due to changes in the basis of valuation of insurance liabilities following the implementation of RBC framework that requires explicit provisions to be set aside for future non-guaranteed liabilities which have yet to be declared and vested.
The Company also did not comply with the minimum capital-adequacy ratio of 130% as at end-December 2009.'' MAA Assurance, however, had sufficient assets to cover the vested guaranteed liabilities in both the Life Par fund and Life Annuity Fund as at the same date.
On 7 January 2011, RM30 million of MAA Holdings' MTN will be maturing and another RM140 million falling due on 6 January 2012.
Given the low likelihood of dividends from MAA Assurance, the repayment of the RM30 million due in January 2011 will mainly hinge on the recovery of non-performing loans expected by the management.
Meanwhile, the group plans to meet the final repayment of RM140 million via the proceeds from the sale of MAA Assurance's life- and/or general-insurance businesses.
'We note that there is a significant element of uncertainty surrounding these repayments. We will continue monitoring the relevant developments in resolving the issues at hand,' it said.
As for the group's first RM200 million MTN issue (2007/2012) under the CP/MTN programme (the first issue), which is guaranteed by AAA-rated DBS Bank Ltd (DBS Bank), RAM Rating said the AAA(bg) rating of the was reaffirmed, with a stable outlook.
'The AAA(bg) rating reflects the strength of the unconditional and irrevocable guarantee from DBS Bank. All risks associated with the first issue will be absorbed by DBS Bank. While the outstanding notes are guaranteed by DBS Bank, subsequent issuances under the CP/MTN facility will carry MAA Holdings' stand-alone BB3/NP ratings,' it said.
The ratings agency said on Tuesday, Oct 5 the rating of the RM200 million commercial papers/medium-term notes (CP/MTN) under its CP/MTN programme (2007/2014), was lowered from BBB3/P3 to BB3/NP.
'The rating downgrade reflects the weakened business profile of its core subsidiary, Malaysian Assurance Alliance Bhd (MAA Assurance or the company),' it said.
RAM said MAA Assurance's life-insurance business has been declining in the last three years due to the shift in its product strategy and strong competition from larger players.
The company's life-insurance business franchise has weakened significantly, as evinced by the drop in its market share, from 12.6% of total new business premiums in 2008 to 8.7% in 2009.
The long-drawn-out negotiations with potential acquirers of MAA Assurance, which started in late 2007, have also taken a toll on its business growth.
In FY December 2009, MAA Assurance posted underwriting deficits of RM216.0 million (before changes in policy reserves) and RM15.0 million, respectively, for its life- and general-insurance businesses.
After investment income and capital gain, the company's life- and general-insurance businesses recorded surplus after taxation of RM183.2 million and RM22.8 million, respectively, during the same period.
As a regulated entity under Bank Negara's purview, MAA Assurance's capital reserves are not sufficient under the newly implemented Risk-Based Capital (RBC) Framework.
The central bank had given MAA Assurance until March 2011 to comply with the minimum capital-adequacy requirement; this includes the partial or full sale of its life- and general-insurance businesses.
Meanwhile, MAA Assurance initially recorded a shortfall in the value of assets over liabilities including long-term policy liabilities, in its Life Participating (Life Par) Fund and Life Annuity Fund as at end-December 2009, due to changes in the basis of valuation of insurance liabilities following the implementation of RBC framework that requires explicit provisions to be set aside for future non-guaranteed liabilities which have yet to be declared and vested.
The Company also did not comply with the minimum capital-adequacy ratio of 130% as at end-December 2009.'' MAA Assurance, however, had sufficient assets to cover the vested guaranteed liabilities in both the Life Par fund and Life Annuity Fund as at the same date.
On 7 January 2011, RM30 million of MAA Holdings' MTN will be maturing and another RM140 million falling due on 6 January 2012.
Given the low likelihood of dividends from MAA Assurance, the repayment of the RM30 million due in January 2011 will mainly hinge on the recovery of non-performing loans expected by the management.
Meanwhile, the group plans to meet the final repayment of RM140 million via the proceeds from the sale of MAA Assurance's life- and/or general-insurance businesses.
'We note that there is a significant element of uncertainty surrounding these repayments. We will continue monitoring the relevant developments in resolving the issues at hand,' it said.
As for the group's first RM200 million MTN issue (2007/2012) under the CP/MTN programme (the first issue), which is guaranteed by AAA-rated DBS Bank Ltd (DBS Bank), RAM Rating said the AAA(bg) rating of the was reaffirmed, with a stable outlook.
'The AAA(bg) rating reflects the strength of the unconditional and irrevocable guarantee from DBS Bank. All risks associated with the first issue will be absorbed by DBS Bank. While the outstanding notes are guaranteed by DBS Bank, subsequent issuances under the CP/MTN facility will carry MAA Holdings' stand-alone BB3/NP ratings,' it said.
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