RAM Ratings Lanka reaffirms AAI's ratings

RAM Ratings Lanka has affirmed Asian Alliance Insurance PLC's ("AAI" or "the Company") claims paying ability rating of BB+ with a stable outlook. The rating is supported by the Company's life-insurance franchise and its conservative investment strategy. However, the rating continues to be pressurized by AAI's small size and weak underwriting results from its general business.

AAI retained its position as the seventh largest composite insurance player, accounting for 2.46 percent of industry composite premiums as at FYE 31 December 2008 ("FY Dec 2008"). Owing to the harsh macroeconomic conditions witnessed in fiscal 2008, the Company's life segment expanded at a slower pace. It maintained its focus on a niche market of professionals, recording an average premium value of LKR 36,639.

However, AAI's general business recorded a spike in growth boosted by an expanding branch network and sales force. The Company widened its branch network from 14 as at end-FY Dec 2007 to 21 as at end-FY Dec 2008.

However, without a clear strategy, AAI's branch expansion and rapid growth in the general segment, took its toll on the Company's claims and expense ratios. The Company's general business expense ratio jumped to 60.73 percent from 43.29 percent a year earlier, while the general business claims ratio also weakened to 75.42 percent as at end-FY Dec 2008 (end-FY Dec 2007: 73.33 percent).

The motor segment, which spurred growth, was the most affected as claims from this sub-class deteriorated to 71.45 percent from 63.21 percent the previous year. Consequently, pre-tax losses from the general business widened to LKR 28.85 million (end-FY Dec 2007: LKR 0.81 million). Nonetheless, AAI's life business continues to support its overall financial performance, as profits augmented 14.60 percent to LKR 131.15 million.

Meanwhile, AAI continues to maintain a conservative stance regarding investments.

Government securities take up the bulk of its investment portfolio, accounting for 81.82 percent of total investments as at end-FY Dec 2008. Furthermore, the bulk of corporate debt investments, which accounted for 12.57 percent of the Company's total investment portfolio, was in investment-grade companies.