SINGAPORE--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb+” of Tune Protect Re Ltd. (TPR) (Malaysia). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect TPR’s adequate risk-adjusted capitalization, as well as its strong and consistent operating performance since inception. TPR is an affiliate of AirAsia Berhad and its associates (the AirAsia Group). This relationship provides TPR with exclusive access to profitable travel insurance business through partnership agreements with cedents and distribution partners. TPR’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), strengthened in 2016 from capital growth that exceeded premium growth.
Offsetting rating factors include low earnings retention and geographic concentration risk. Despite continued improvement in its risk-adjusted capitalization, TPR’s high dividend payout ratio has led to fluctuations in its BCAR. Additionally, because of TPR’s close ties to the AirAsia Group, the majority of its premium is sourced from Malaysia. This concentration exposes TPR’s results to credit risk from the AirAsia Group, as well as to regulatory changes in the market. In 2016, gross premium written fell below expectations, dampened by the Malaysian Aviation Commission’s consumer protection code that prohibits adding on extra services, such as travel insurance, to airfares.
Positive rating actions could result from TPR establishing a stable and strong BCAR trend that is supported by an effective capital management policy and profitable premium growth. Negative rating pressure could arise from a lower-than-expected BCAR or deterioration in operating performance. Deterioration in AirAsia Group’s business profile or financial strength also could result in negative pressure on TPR’s ratings.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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