5 Interactive Distance Learning Programs on Islamic Banking and Finance

Saturday, December 4, 2010

FITCH affirms HSBC Amanah Takaful's IFS at A-

Fitch Ratings has today affirmed the Insurer Financial Strength (IFS) Rating of Malaysia-based HSBC Amanah Takaful (Malaysia) Sdn Bhd (HSBCAT) at 'A-'. The Outlook is Stable.

HSBCAT is considered an important member of HSBC Group under Fitch's "Approach to Rating Insurance Groups", and its rating is underpinned by the group's ability and willingness to provide on-going support. The rating agency recognizes the support and benefits HSBCAT enjoys from the group's strong branding, product and distribution capabilities, and other management resources. The rating also incorporates HSBCAT's conservative investment mix, healthy capitalisation, and prudent management. On the other hand, it is constrained by the takaful operator's limited track record, modest size, amidst intensive market competition. Additionally, the company is challenged to manage its expenses appropriately as it builds up its business portfolio.

Since its inception, HSBCAT's asset allocation has been conservative. At the fund and operator level, investments reside mostly in fixed income instruments, as well as cash and fixed deposits. Fitch views the investment strategy, which places principal protection before return maximisation, as prudent. However, the agency notes that HSBCAT is somewhat constrained by the limited depth and breadth of Malaysia's Islamic bond market. Although HSBCAT's current capital level is healthy, the agency cautions that it is important for the operator to maintain its capital level commensurate with its portfolio, as it grows its business

HSBCAT follows a modified Wakala (agency) model, whereby the takaful operator receives a Wakala fee for the management services it provides to the participants, as well as an incentive fee, expressed as a percentage of surplus from the risk funds. Under this model, HSBCAT's profitability is determined, to a large extent, by its Wakala fee income and expense level. In Fitch's opinion, the execution risks inherent in HSBCAT's business plan are mitigated by the group's management support.

The key rating driver that could result in a one-notch upgrade for HSBCAT would be improvement in the credit profile of the HSBC Group, as reflected by an upgrade of HSBC Holdings Plc ('AA'/Stable) and/or the group's core operating entities such as the Hongkong and Shanghai Banking Corporation ('AA'/Stable). Conversely, should the credit profile of HSBC Group deteriorate, this could put downward pressure on HSBCAT's rating. Additionally, an unexpected significant deterioration in the standalone credit profile of HSBCAT in terms of market franchise, premium sustainability, operating performance and capital level relative to its business profile, could also affect its rating. HSBCAT's rating is assigned with less than five years of audited information available.

HSBCAT was incorporated in 2006 as a composite takaful operator. At present, the company is 49%-owned by HSBC Insurance (Asia-Pacific) Holdings Ltd, 31% by Jerneh Asia Bhd and 20% by the Employees Provident Fund Board. HSBCAT's key products include retirement protection, homeowner takaful, mortgage life and investment-linked plans

Courtesy by : Reuter

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