Posted by observatory > 2021-03-07 17:50 | Report Abuse

Both STMB and MNRB are takaful insurers. Yet they have different levels of equity. For each amount of contract liabilities, MNRB has more equity than Allianz. But STMB has less equity. What could be the reasons?

Posted by observatory > 2021-03-07 17:52 | Report Abuse

As a comparison, the capital ratio of Malaysian banks are closer to one another. For example, the CET1 ratio of Malaysian banks only differ by a few percentage points only.

Why do insurance companies have a larger discrepancy? What does it imply in term of their future growth potential, dividend payout, risk and other considerations?

Thank you.

Posted by limyuwei > 2021-03-07 19:06 | Report Abuse

Concept of new business strain mainly on the Life side only, and especially ILP, after the recent Minimum Allocation Rate, MAR.

To recap, this is profit release for regular premium NPAR/ILP:
https://i.imgur.com/rZ4jyaz.gif

Selling more new business, will cause a loss in early year. The loss here is actual negative cashflows, rather than loss on paper.

i.e. imagine you buy a ILP, 2000 annual premium, in the first year, 60% allocation, insurer only take 40% of that, 800 as income, but at the sometimes, need to pay out other expenses (e.g. underwriting cost, printing cost, campaign cost) and commission, say 1200. For this APE 2000 ILP sold, there will have a negative cashflow of 400 in the first year.
For GI, while NBS also exists, but on a calendar year basis, a policy sold will only contribute to a net positive cashflows.

CAR ratio will determine how much new business insurers can write. When insurers sell too many, the CAR ratio will drop to below the target ratio. Hence if insurers just remain the minimum CAR ratio, e.g. by paying out dividend, there is limited room for them to write new business. However, if insurers have a higher buffer, then they can more comfortably write more new business. Allianz has a 250% growth in NBV in 2019 vs 2015.

Posted by observatory > 2021-03-07 23:20 | Report Abuse

Hi Yu Wei. Thanks for your reply.

It’s good that you highlighted that NPAR/ ILP policy acquisition cost is front loaded. Will IFRS 17 require the cost to be apportioned over the policy lifetime, like how profit recognition has to be distributed?

You’ve also highlighted that Allianz Life Insurance has grown its New Business Value by 250% from 2015 to 2019. I’ve crossed check the annual reports. Allianz first published NBV in 2015. The NBV over the 5 years amounts to about RM900 million.

Even factoring in policy surrender, could I say that conservatively there is still an embedded value of say RM800 million from just last 5 years alone? That is like RM 800m / (177m + 169m) = RM2.3 value per share created by life insurance over the period?

Is there a way to estimate the existing capital level of an insurance company, so that we can determine how much it is above the 130% minimum Capital Adequacy Ratio? And from there determine much new business it could write without increasing its retained earnings?

I still don’t understand why LPI has RM 2,075m of equity for RM 2,168m of contract liabilities, which means RM1 of equity for RM1 of contract liabilities. At the other extreme, STMB has RM1,542m equity for RM9,224m contract liabilities, or RM1 of equity for RM6 of contract liabilities.

What does this discrepancy tell us about their differences?

Posted by untong > 2021-03-08 03:03 | Report Abuse

Hi i think you need to understand the nature of general insurance business is different with life insurance biz.

Allianz is life+general (mainly motor)
LPI is general only (mainly fire)
MNRB is takaful+general(mainly reinsurance)

To put it simple, general insurance is different with life insurance in these few aspects;
1) general insurance has to account for unearned premium.
2) general insurance claims is different from life insurance as their claims amount are not specified in exact amount but based on damage while in life insurance you will get fixed sum assured.
3) it is harder to predict property/casualty claims. For example just refer to MNRB losses few years back when there was Thailand flood/Kuantan flood etc, or MH370 plane insurance etc.
4) in general insurance, there is something called IBNR (Incurred but not reported), and it takes many years to established the exact claim amount. Just refer to Allianz annual report 2019 note 39.2. They still need to account for claims liabilities for policies underwritten in year 2012 (up to 7 years). But insurance co. no longer receive premium from policies in 2012.

So i think it is normal for general insurance to have strong financials and needs more equities. But why some insurance co. still like motor insurance biz? Because of the cash flow.

Posted by limyuwei > 2021-03-08 09:29 | Report Abuse

Yes, acq cost will spread over policy term.

Embedded value already factored in expected surrender in the calculation, but yes about that RM2.3 per share thing.

130% is min CAR at all scenarios, usually company will have much higher internal CAR (e.g. 170% - 200%)

There are many things in the contract liabilities, not a good way to compare equity vs contract liabilities, even for GI vs GI. You are now comparing GI vs GI+Life, and GI vs GI+Life(takaful), wont show you meaningful thing.

@untong
2. While life (death) usually fixed sum assured, it is not the case for medical. For Life insurers in Malaysia, medical component is the largest, and is behaving just the same way like motor claims.
3. This is comparing low frequency high severity, vs high frequency low severity. That impacts RI the most, than GI (mainly fire, but usually GI will get RI support on that, motor claim is high frequency low severity), then Life.
4. IBNR also exist for medical claims, but usually shorter duration (e.g. less than 2 years)

In my view, GI will just be limited upside in the future, unless they branch into health. However, consumers typically prefer a bundled ILP in Malaysia.
Life however, still many upsides due to low insurance penetration.
Some small tier insurers (especially takaful) will still struggle to reach a sustainable scale, but for those that already hit the critical mass, they will have a very good future.

Posted by Papayashot > 2021-03-08 20:34 | Report Abuse

yuwei, what you think on the recent spike-up of Takaful Malaysia share price? It seems that Allianz can't pick up the same momentum of Takaful Malaysia, although both companies report good QR report...

Posted by observatory > 2021-03-08 22:08 | Report Abuse

Hi untong and yuwei, thank both of you for the explanation.

Can anyone elaborate on why insurers prefer motor insurance on the basis of cash flow? My personal experience is I pay up front premium for both motor and fire insurances on annual basis. Won't the cash flow for both types of insurance be quite similar to the GI?

I also looked up the ISM Insurance Services Malaysia 2019 Yearbook. I wonder why fire insurance has a much lower net claimed incurred ratio at 27.6% than motor at 70.1% (page 18). Does it mean fire insurance offers better margin? Or does fire insurance incur higher expenses in commission and management fee?

Building on papayashot’s question, I also wonder in the long run will Allianz be stuck in the low growth conventional insurance business. According to the ISM yearbook, general takaful GWP grew 18.8% in 2019 (albeit from a low base), but general insurance shrunk by 0.8% (refer page 15 and 21). New business contribution of Family Takaful grew 25% in 2019 (page 11).

Will the greater growth prospect compensate for the limitation on takaful players as highlighted earlier? How easy and likely for Allianz to apply for a takaful license?

Posted by untong > 2021-03-09 02:58 | Report Abuse

Just an idea on how bad the loss ratio of motor insurance in Malaysia in 2016,2017.
https://www.bnm.gov.my/documents/20124/761688/BNM_Periodic+Updates+on+Development+of+Liberalisation+of+The+Motor+Tariff_March_2018.pdf/3ca0a0c0-0718-777d-f530-9d2acba30c60?t=1580976245828

Posted by untong > 2021-03-09 03:06 | Report Abuse

Hi sorry to confuse you. What i meant is motor class was notoriously unprofitable biz for insurers. But most insurers cannot letgo motor portfolio because it is still the biggest segment in General insurance industry. (Perhaps only LPI able to selectively underwrite motor policies cox they having biggest fire class biz in Malaysia thanks to their parent :) ). So even though it may be underwriting loss from motor class, but since cash are collected upfront, insurers can earn investment income from the float and hope it can recoup the losses after accounted for all losses many years later. Also they can do cross selling for fire class biz so that fire insurance can cross subsidies motor insurance.

I suggest you to read up on agm minutes from year 2016 onwards, many good info right there;
https://www.allianz.com.my/investor-updates

for example,
On 130% minimum Capital Adequacy Ratio, life insurer prefer ILP plan (over traditional plan) as it is less capital intensive and manageable margin (it is like PDP vs Turnkey contractor in construction industry); (page 6, 2016 agm q&a)
https://www.allianz.com.my/documents/144671/271262/42nd+Annual+General+Meeting+Minutes+2016.pdf/150dc0c2-e6db-4598-b7e6-33da0850aa05

On motor class biz profitability; (page 9, 2018 agm q&a)
https://www.allianz.com.my/documents/144671/221983/44th+AGM+Minutes.pdf/27b1eea7-8abd-41d4-8e89-1e11c021359b

On potential impact from motor detariffication; (page 2,3, 2017 agm q&a)
https://www.allianz.com.my/documents/144671/279668/43rd+Annual+General+Meeting+Minutes+2017.pdf/ba2305b2-de1b-49e4-9c20-f132fdee8b51

Some info on the general insurance in Malaysia here;
https://faberconsulting.ch/files/faber/pdf-pulse-reports/MIH_2019_Final_Web_version.pdf

To cut long story short, why i am positive on Allianz over LPI;
1) as yuwei mentioned on the potential of life insurance (malaysia life insurance penetration is only 45-54%, still got many room to grow), and also the growth potentials from insurance fund spread etc..
2) I see improving claim ratio from motor class post motor detariffication (Allianz is biggest player in Malaysia),based on their 2019 onwards claim ratio and industry player opinions. Also helped by less motor claims in 2020, 2021 mcos. Why? before detariffcation motor class was notoriously lossmaking. If being the biggest player wont benefit how those smaller players survive on further motor tariff decline :)
3) Fire class insurance yet to go detariffication. So i foresee fire insurance wont be as profitable as before post fire detariffication. In my view negative for LPI long term though impact maybe limited as their stickiness to the loan profile.

https://www.theedgemarkets.com/article/newsbreak-bank-negara-extends-timeline-fire-insurance-detariffication

Posted by DreamEmperor > 2021-03-09 04:32 | Report Abuse

Waah

Posted by DreamEmperor > 2021-03-09 04:33 |

Post removed.Why?

Posted by DreamEmperor > 2021-03-09 04:33 |

Post removed.Why?

Posted by DreamEmperor > 2021-03-09 04:33 | Report Abuse

Okay also la

Posted by DreamEmperor > 2021-03-09 04:33 | Report Abuse

Boleh juga la

Posted by DreamEmperor > 2021-03-09 04:33 | Report Abuse

Very good

Posted by DreamEmperor > 2021-03-09 04:34 | Report Abuse

Excellent

Posted by DreamEmperor > 2021-03-09 04:34 |

Post removed.Why?

Posted by DreamEmperor > 2021-03-09 04:34 | Report Abuse

Congratulations

Posted by DreamEmperor > 2021-03-09 04:34 | Report Abuse

Keep surging

Posted by DreamEmperor > 2021-03-09 04:35 | Report Abuse

Good luck

Posted by Pinky > 2021-03-09 07:30 | Report Abuse

Admin please ban this spamming DreamEmperor

Posted by observatory > 2021-03-09 22:33 | Report Abuse

@untong, thanks for your clarification and the relevant links. Yes, the AGM Q&A will be a good source of information. I'll read up first. Much appreciate!

Posted by untong > 2021-03-10 11:37 | Report Abuse

You are welcomed.

btw there are few bad things i observed from Allianz
1) The ICPS thingy. They always get 1.2x dividend compared to ordinary shareholders..
2) I have not much clue about the performance of their non-motor general insurance. Seems like not their focus. I can foresee fire class biz is not easy to expand nowadays as many their takaful/conventional competitors have strong bank partners.
3) Their life insurance market share shrink quite noticebly during mco year 2020. Also their ILP plan premium growth is below industry benchmark. Not sure is due to their fund is underperforming or their agent prefer to sell traditional plan or other factors.

Posted by limyuwei > 2021-03-10 11:59 | Report Abuse

*life insurance new business market share shrink (-10%), not the life insurance business shrink.
**new business market share shrink doesn't mean lesser current profit, or lesser future profit
***NBV is more meaningful (-7.7%)
****APE is not representative, as anyone can just sell a big saving product, with high premium but low NBV

That is the uniqueness long term nature of life insurance. e.g. even if the big 3 right now stop selling new business now, it will take years for Allianz to catch up.

Posted by untong > 2021-03-10 13:00 | Report Abuse

Thanks for the info. I am not industry practitioner so i can only read and scuttlebutt surface info from here and there hehe. Always get confused by life insurance terms. Hope the premium growth slow down is short term event and they can catch up after mco lifted.

can i understand NBV as the portion of fund belongs to insurers? excluding life fund belongs to policyholders?

Posted by limyuwei > 2021-03-10 13:27 | Report Abuse

APE is the annual premium, NBV is the future profit.
e.g. Allianz APE is 530mil in 2020, and NBV = 239mil.

If everything as expected, the new business sold in 2020, with total APE 530mil, will generate PV of 239mil profit for Allianz. ILP currently usually sold with term 70, and assume average entry age = 30, you can understand as 239mil profit, over average of 40 years. (of course in reality, the profit will be negative in certain year).
The 239mil is in PV basis and including expected surrender. What this means is, the first 10 years profit, can easily be 20mil a year.

i.e. if nothing change, the profit next year will be higher by 20mil (due to NB in 2020), and profit the next 2 year will be higher by 40mil (due to NB in 2020 & 2021).

Of course by then, IFRS17 will kick in, and profit recognition will change again, but same concept still hold.

Posted by Pinky > 2021-03-10 13:27 | Report Abuse

You guys forgot 1 very important factor

I read somewhere that Allianz got exclusive right to sell motor insurance at Pos Malaysia offices nationwide

This is a good income driver

Posted by limyuwei > 2021-03-10 13:36 | Report Abuse

Cant just read the headline. Allianz motor insurance is notoriously expensive, and customer base of Pos Malaysia is usually not T20. Furthermore, Allianz will need to pay for that exclusive right, it is not a free meal.

Posted by untong > 2021-03-10 15:43 | Report Abuse

Hi yuwen, thank you. Appreciate it. Good to know that the profit from life insurance wont be significant in initial years but it will snowball on multiple years.

Hi Pinky, it already show some small success on motor insurance biz, hope can replicate on more profitable fire insurance biz.

“ The group was one of the panel of insurers for Pos Malaysia (Pos) until the execution of a new agreement in October 2019. The agreement now places Allianz as the preferred insurer for Pos. This is a step-up in collaboration compared to other competitors that remain on the panel of insurers for Pos. The new arrangement has bolstered the premium growth for general insurance in 6M20 which beat the industry’s with a contribution of RM90mil (circa 8.0%) to AGIC’s total GWP of RM1.14bil.

The increase in premiums was a significant improvement over 6M19’s RM20mil generated through Pos. Close to 100% of the premiums are motor insurance with private cars and motorcycles owners renewing their insurance under Allianz.
Presently, the mix of motor insurance through Pos is made up of 70–80% private cars and 20–30% motorcycles. The types of motor insurance offered through Pos include: i) comprehensive; ii) third-party fire and theft; and iii) third- party insurance.
Moving forward, the group plans to expand the insurance products sold through Pos to include non-motor. We see this as an opportunity for AGIC to further increase its growth in premiums in the future, thus sustaining a higher growth in GWP over the industry.“

Source:
https://www.amequities.com.my/documents/20126/0/Allianz+Malaysia+201001.pdf/df686fc9-78f4-cb96-4166-bf87ed8f39a7?t=1601514203447

Posted by Pinky > 2021-03-10 15:52 | Report Abuse

@limyuwei I thought motor insurance is standard across all general insurers?

Of course u don't go add this and that la. General comprehensive insurance should be standard, no?

Posted by limyuwei > 2021-03-10 16:48 | Report Abuse

Motor insurance used to be standard across GI. Gov mandated to charge same rate, but now abolish that already.

Many other GI tried to be innovative and competitive, except Allianz. Allianz finally has online portal to purchase motor insurance, but still will incur 10% commission, quite a shame to be largest GI in the country.

Apple to apple comparison, you can see Allianz typically tends to overquote the market value of vehicle, and also charge higher rate per market value, vs Etiqa/Axa which more price competitive.

Posted by Pinky > 2021-03-10 17:07 | Report Abuse

@limyuwei now that you mention it

Yeah, I reinsured using Kurnia/AmAssurance online myself (i.e. skip agent), got 10% rebate

Allianz no rebate

Posted by observatory > 2021-03-10 18:28 | Report Abuse

Hi Yuwei. GEICO is often hailed as the success story in auto insurance according to the folklore of value investing.

Are there any lessons that Malaysian motor insurers especially Allianz can learn from GEICO, though we may be constrained by a smaller market size?

Posted by limyuwei > 2021-03-10 23:01 | Report Abuse

Should stop obsess with Berkshire Hathaway/GEICO, the model that used to work, will not work in modern era due to tighter regulation.

Why should any insurance company want to take unnecessary risk, when they can just continue to grow the business steadily and pocket the insurance margin with minimal risk?

Posted by observatory > 2021-03-10 23:11 | Report Abuse

Hi Yuwei, I got your point. I too agree that a buisness with safe and steadily growing profitability offers a more sound investment. As an outsider I'm just mystified by how Berkshire did it. Thanks for your sharing!

Posted by Zackmeiser > 2021-03-11 03:07 | Report Abuse

I agree with the higher insurance price quoted by Allianz.

Posted by ucrst2140q > 2021-03-11 12:47 | Report Abuse

Allianz no rebate ? hmmmmm

Posted by limyuwei > 2021-03-12 11:28 | Report Abuse

https://www.islamicfinancenews.com/ifrs-17-a-mountain-too-high-for-takaful.html?access-key=819f46e52c25763a55cc642422644317

For investment-linked products, profit recognition will be smoothened over a period of time and by doing this, it will help ease the strain current accounting standards have on a new business.

In contrast, for mortgage-backed business, lower profit will be shown in the first year which could negatively affect a company's overall profit, especially during the IFRS17 transition period.

Posted by hazli > 2021-03-12 13:00 | Report Abuse

KUALA LUMPUR (March 11): A majority of life insurance companies in the country are extending financial assistance to their policyholders who may develop side effects or complications resulting in hospitalisation from Covid-19 vaccinations.
Life Insurance Association of Malaysia (LIAM) said the coverage includes hospitalisations costs that were medically necessary and reasonable due to side effects from COVID-19 vaccination under the National Covid-19 Immunisation Programme.
A number of life insurance companies are also offering cash relief programme for side effects under their respective Covid-19 vaccine fund or medical assistance programme,” it said in a statement today.
It said the assistance includes reimbursement of medical bills for Covid-19 patients and post Covid-19 vaccination support for hospitalisation due to vaccine side effects; medical assistance and special death benefits; hospitalisation income; and cash relief.
Chief executive officer Mark O’Dell advised policyholders to contact their insurance company to find out more about the assistance offered in the event that they may develop side effects due to the Covid-19 vaccine.
While applauding the government’s proactive efforts to protect the rakyat, he also urged Malaysians to play their part in the COVID-19 battle by registering for the immunisation programme via the MySejahtera application.

Posted by Pinky > 2021-03-13 13:25 | Report Abuse

While we are discussing the pros and cons of Allianz here, EPF has been accumulating.

Posted by Zackmeiser > 2021-03-14 03:56 | Report Abuse

what is IFRS17 in layman term? i read its basically accounting jargon for profit recognition. can someone elaborate further on how that will impact allianz going forward?

Posted by stteck > 2021-03-14 13:23 | Report Abuse

Pinky , when EPf stop buying the time will be our spring

Posted by relaks > 2021-03-14 13:27 | Report Abuse

After pandemic, Insurance co will go up or down?

Posted by limyuwei > 2021-03-14 16:18 | Report Abuse

Najib just commented on insurance.

Posted by observatory > 2021-03-14 18:07 | Report Abuse

Thanks yuwei for the news. I share the link here. Ironically nowadays Najib has become the best opposition MP in my view.

https://www.freemalaysiatoday.com/category/nation/2021/03/14/why-are-premiums-high-when-accidents-thefts-are-down-asks-najib/

Posted by Pinky > 2021-03-15 09:40 | Report Abuse

Guys, just wanna share an observation from my experience of investing in shares in Bursa.

As a consumer, you may find a company to be good, but it may not be a good investment.

As a consumer, you may find a company to be shitty, a bully etc, but it could be an excellent investment.

Sentiment as consumer is not a good indicator to decide whether a company is worth investing in.

Oh by the way, I topped up on Allianz just now :)

Posted by limyuwei > 2021-03-15 10:22 | Report Abuse

Well, in my view still a good investment, just don't expect a 100% flip in few months time.
Should be no problem gaining 10% a year for the next 3 years.
Will need something big to trigger it to achieve a fairer value, e.g. a new M&A, IFRS17, RBC2, higher dividend etc.

Posted by Pinky > 2021-03-15 10:30 | Report Abuse

@limyuwei what can go up 100% in a few months can also go down 90% in a few months

And Allianz is not that kind of stock

Posted by observatory > 2021-03-15 21:36 | Report Abuse

I like companies with good fundamentals and management, conservatively managed and yet is on a growth path. Better still it is little noticed and illiquid so that the price suffers from a liquidity discount. While I don't understand this company as well as some of you here, Allianz seems to fit the bill.

I'm not bothered by a stock price that hardly moves as long as dividend is steady and growing. A stagnant share price offers me time to observe the business performance, and opportunity to top up/ exit during that period without suffering capital loss/ opportunity cost.

Eventually share price will follow a company performance, for better or worse.