(The following statement was released by the rating agency)
Dec 10 -
Summary analysis -- Overseas Assurance Corp. Ltd. ----------------- 10-Dec-2012
CREDIT RATING: Country: Singapore
Local currency A+/Stable/--
Primary SIC: Fire, marine, and
Credit Rating History:
Local currency Foreign currency
31-Mar-2011 A+/-- --/--
19-Mar-2002 NR/-- --/--
The local currency counterparty credit rating on Overseas Assurance Corp. Ltd. (OAC) reflects strong implicit support from the company's parent, Great Eastern Holdings Ltd. (GEH; not rated), given OAC's strategically important role to the wider group's insurance franchise within Singapore and Malaysia. We also consider OAC's financial profile to be robust, given the insurer's strong capitalization and above-average operating performance. OAC's small non-life insurance franchise and concentrated exposure to some equity investments moderate these strengths.
OAC's strategic importance to its parent company is shown in that it accounted for about 8.8% of GEH's assets in 2011 and 17% of its capital. Life insurance assets formed 77% of OAC's total assets while non-life insurance assets made up the remaining 23%. OAC's life portfolio has gradually reduced since 2009 following the group's realignment of the bancassurance distribution strategy, with OAC's sister company, The Great Eastern Life Assurance Co. Ltd. (local currency AA-/Stable/--; axAAA/--), playing a greater role. As a subsidiary of GEH, OAC receives implicit parent support in investments, human resource, IT, finance, actuarial, and risk management functions.
OAC's capitalization is supportive of the rating, with market risk from equity holdings contributing the most to the company's capital requirements. Investment risk heavily drives the company's capital model results, given the size of OAC's life insurance portfolio relative to its general insurance portfolio. We do not expect this risk level to substantially change in the near future.
OAC's satisfactory operating performance reflects the strong underwriting results of its non-life portfolio and stable investment yields over the past four years. We expect the insurer's underwriting performance to remain profitable, although the company's inclusion of liabilities from an acquired motor portfolio will likely be a drag on its combined ratios over the next few years.
We expect non-life insurance to remain an important part of OAC's product offering. The operating results of the non-life business have improved over the past few years, relative to its life operations. Return on assets for OAC's life insurance portfolio was 0.5% in 2011, a level that we consider moderate. This ratio reflects OAC's slower accumulation of profits in its large portfolio of "participating" insurance (in which policyholders receive a share of surplus earnings). The participating fund accounted for 91% of OAC's life insurance funds by total assets as of Dec. 31, 2011.
OAC has lowered the risk in its participating fund through substantially reducing its equity holdings. However, the company continues to have significant equity investments in other funds. The insurer has large long-term holdings in some companies, exposing OAS to concentrated investment risk. Nevertheless, the company's overall investment quality is good, in our view, with sound liquidity. About 69% of OAC's invested life insurance assets in 2011 comprised bonds and cash. Holdings of liquid assets have remained high this year.
Enterprise risk management
We consider GEH's enterprise risk management (ERM) as "adequate with strong risk controls." GEH adopted an ERM framework early and has a strong risk management culture and an ability to articulate its risk appetite. The strong risk analytics enable the group to manage its risk exposure effectively.
OAC's life portfolio is fully integrated into the group's risk management framework. Nevertheless, risk management in non-life operations is still silo-based and less sophisticated. We believe the insurer's still-developing strategic risk management framework would strengthen over time, in line with ERM developments in the group.
The stable rating outlook reflects our view that OAC will maintain its strategic importance to the GEH group and that implicit support from GEH will remain strong. We expect OAC's life insurance portfolio to reduce gradually. We also expect its non-life business to grow in Singapore and Malaysia due to increased business volume from brokers, deeper penetration in corporate and personal bancassurance, and direct sales. We believe the company will maintain a strong capital position, with above-average operating performance, robust financial flexibility, and a good liquidity profile.
We may raise the rating if we consider OAC to be a core entity in the group. We may lower the rating if the company's operating performance deteriorates unexpectedly or its capital position weakens significantly. We may also lower the rating if OAC's relationship with the GEH group wanes, although we believe that possibility is remote.
Related Criteria And Research
-- Group Rating Methodology And Assumptions, Nov. 9, 2011
-- Refined Methodology And Assumptions For Analyzing Insurer Capital Adequacy Using The Risk-Based Insurance Capital Model, June 7, 2010
-- Interactive Ratings Methodology, April 22, 2009
-- Group Methodology, April 22, 2009
-- Hybrid Capital Handbook: September 2008 Edition, Sept. 15, 2008
-- Summary Of Standard & Poor's Enterprise Risk Management Evaluation Process For Insurers, Nov. 26, 2007