The Credit Ratings (ratings) reflect Lonpac’s strong risk-adjusted capitalization and its excellent operating performance, which is supported by its business profile. The company has a history of meeting its business plans, which has a primary focus on profitability; and the positive outlooks reflect A.M. Best’s expectation that the company will continue meeting its business plan as Malaysia’s non-life market gradually moves toward liberalization.
Lonpac has a track record of strong capital generation, supported by profit margins (combined and operating ratios) that are among the strongest in Malaysia’s non-life market. Lonpac’s profitability benefits from its affiliation with Public Bank Berhad and Lonpac’s efficient business processes. Return on shareholder capital has been strong, as demonstrated by a five-year average return on capital and surplus in excess of 30%. Its risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), has strengthened over the years, supported by good asset quality and improved underwriting leverage.
Offsetting rating factors include the potential decline in premiums subsequent to the liberalization of Malaysia’s fire line, which could erode Lonpac’s profitability in its largest line of business. Lonpac’s underwriting capabilities, as well as those of its peers, will be increasingly tested as tariffs are gradually removed.
Positive rating actions could occur if Lonpac is able to maintain its strong profitability as fire insurance tariffs are removed. Downward rating actions could arise from material deterioration in profitability.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings.
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