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KLSE: ALLIANZ       ALLIANZ MALAYSIA BHD
Last Price Avg Target Price   Upside/Downside Price Call
13.20 17.49     +4.29 (32.50%)
* Average Target Price, Price Call and Upside/Downside are derived from Price Targets in the past 6 months.
** Price Targets are adjusted for Bonus Issue, Shares Split & Shares Consolidation (where applicable).
Date Open Price Target Price Upside/Downside Price Call Source News
22/09/2022 13.16 17.40 +4.24 (32.22%) BUY AmInvest Price Target News
29/08/2022 12.86 16.60 +3.74 (29.08%) BUY RHB-OSK Price Target News
25/08/2022 13.00 17.90 +4.90 (37.69%) BUY RHB-OSK Price Target News
25/08/2022 13.00 17.10 +4.10 (31.54%) BUY AmInvest Price Target News
23/05/2022 12.68 17.90 +5.22 (41.17%) BUY RHB-OSK Price Target News
23/05/2022 12.68 17.90 +5.22 (41.17%) BUY AmInvest Price Target News
23/02/2022 12.68 17.80 +5.12 (40.38%) BUY AmInvest Price Target News
25/11/2021 13.00 17.70 +4.70 (36.15%) BUY AmInvest Price Target News


Price Target Research Article/News (past 6 months)
22/09/2022  AmInvest Allianz Malaysia - Top line momentum holding up for general insurance; improving life business' ANP from a slow 1Q22
29/08/2022  RHB-OSK Allianz Malaysia - Life Is Not as Bad as It Seems; Stay BUY
25/08/2022  RHB-OSK Allianz Malaysia - Life Hits a Rough Patch; Still BUY
25/08/2022  AmInvest Allianz Malaysia - Lower motor claims ratio than industry's
23/05/2022  RHB-OSK Allianz Malaysia - Strengthening Its Agency Distribution Channel
23/05/2022  AmInvest Allianz Malaysia - Premiums for general and life businesses outpacing industry growth
23/02/2022  AmInvest Allianz Malaysia - Premium growth gathers pace; higher embedded value for life business
25/11/2021  AmInvest Allianz Malaysia - Annualized new premium growth for life business continues to be ahead of industry



  7 people like this.
 
wsb_investor AIA uses TEV basis (more aggressive assumptions), Allianz uses MCEV basis. Also, Allianz prices its ILP to age 70 only, to get bigger market share, so lower premium and lower profit, whereas AIA (at least used to, not sure about now) prices its ILP up to 100.
13/07/2022 11:50 PM
observatory If I understand correctly, it’s is like AIA sells more premium high margin products to a more affluent market, whereas Allianz sells affordable average margin products to the mass market.
An imperfect analogy could be Louis Vuitton versus Coach? One is luxury, and the other affordable luxury.
Both have similar NBV in 2021 (Allianz 275m versus AIA 283m), but Allianz’s NBV growth slightly outpace AIA over a 3-year period, although AIA grew faster in 2021 (at 26% versus Allianz 15%)
14/07/2022 12:48 PM
wsb_investor AIA 283m is in USD.
14/07/2022 1:16 PM
observatory Yeah, overlooked. So AIA Malaysia NBV is 4 to 5 times of Allianz, and still growing fast, quite amazing.
14/07/2022 2:53 PM
observatory After Affin's AmGeneral Insurance merges with Liberty Insurance, the combined entity will overtake Allianz General to become the largest motor insurer in Malaysia. Do you forsee a lot more competition on the general insurance side?
Some years back the industry combined ratio was above 100%. With the ongoing market liberalization, could GI become loss making again, at least in underwriting losses?
14/07/2022 2:57 PM
wsb_investor Not very familiar with GI business, but AmG/Liberty or AXA/Generali, only AXA is slightly reputable due to online presence, the rest are more or less like local company (Liberty = ex-Uniasia, Generali = ex-MPHB/Magnum) instead of real MNC. Combined entity should have cost saving advantage, but that will take years to materialize. Not foreseeing more competition due to lack of awareness of both Liberty & Generali branding in Malaysia. I aslo don't think UW loss will ever happen again.
14/07/2022 6:17 PM
observatory As shown in page 70-71 of the Yearbook, some of the GIs' combined ratios are quite close to 100%. Axa Affin General, which should have scale, is 99.82% (98.71% in 2020).
The best performer is Loanpac under LPI, where combined ratio is 60% (65% in 2020). I suppose it's helped by its dominance in fire insurance, where industry net claim ratio is only 41%, much lower than motor's 55%.
Fire net claim ratio is only 13% for Loanpac! Whereas Allianz General is as high as 70%.
Net commission ratio, Loanpac is 6%, versus Allianz General 15%.
Any idea why the huge discrepancy in performance?
No wonder LPI share price commands a premium despite limited growth prospect in the sector.
16/07/2022 12:34 PM
wsb_investor https://www.theedgemarkets.com/article/malaysia-said-set-2023-cutoff-foreign-insurer-stake-sales
18/07/2022 1:54 PM
observatory What are the implications?
19/07/2022 1:22 PM
wsb_investor The Group do not provide forecast/estimates for financial results. It is observed that retained earnings would be higher under MRFS 17 as compared to the current MFRS 4 mainly contributed by faster profit emergence for investment-linked products, and deferral of acquisition cost. https://www.allianz.com.my/content/dam/onemarketing/azmb/wwwallianzcommy/pdf/investor-updates/2022/ANNEXURE_2_48TH_AGM_QA.pdf
19/07/2022 6:57 PM
wsb_investor Embedded Value for Allianz Life as at 31 December 2021 was at the range of RM3.5 billion. Embedded value is calculated based on the best estimate assumptions (i.e mortality, persistency, morbidity etc) discounted at risk free rate. https://www.allianz.com.my/content/dam/onemarketing/azmb/wwwallianzcommy/pdf/investor-updates/2022/OTHER_48TH_AGM_QA.pdf
19/07/2022 7:01 PM
wsb_investor AIA/Prudential/Tokio Marine/Zurich might force to IPO/local JV/donation. For some reasons, donation is very unlikely. Regardless if IPO or local JV, there will be public disclosure of price/EV of the transaction (it will be more than 100% for MY market). Hope by then public can notice how deeply undervalue Allianz is.
19/07/2022 7:05 PM
observatory RM3.5b EV is quite close to RHB's and Am Bank's estimate of RM3.3b.

I don't understand when the minutes say discounted at "risk free rate". Does it mean the future profits are discounted at 10 year MGS, which is about 4%, rather than a higher rate?

If discounted at 4%, the EV will be inflated. As a contrast, in page 69 of the AIA presentation I mentioned earlier, AIA adopted a 8.56% discount rate for Malaysia (4% 10Y gov bonds + 4.56% risk premium).
19/07/2022 8:13 PM
observatory Based on what I can find, quite a few public listed life insurers in this region, with the exception of AIA, are priced below their EV!

They are not confined to Chinese insurers such as China Life or Ping An, where valuations are depressed. Take for example, The Edge Saturday edition on May 14 had a table extracted from Bloomberg showing Great Eastern and Prudential were sold at 0.53X and 0.88X P/EV respectively.

Why does the market place a huge discount on life insurers? And not just in Malaysia. Have I missed something?
19/07/2022 8:20 PM
wsb_investor If you only looking at ILP, then yes is discounted with risk free rate, but if you looking at conventional products, at the second half of the policy term, outgo will > income, using risk free discount rate, it is actually more conservative. Another point to add is, for ILP, Allianz also project the fund return with risk free rate, whereas AIA (using TEV basis) project the fund return with high return (much higher than 8.56%). Overall, Allianz's MCEV basis is more conversative, not aggressive.

There are reason why GE and Pru appear to be cheap. For Pru, there are a couple reasons:
1. The EEV tripled in past 3 years (Asia business), but share price didn't catch up
2. There are many corporate activities recently, e.g. spinoff US/UK business, the investor base might change.
3. IFRS profit is on downwards trend for Pru. This shouldn't be a concern due to the flaw of existing IFRS, but again most investors with limited knowledge and only look at IFRS profit.
20/07/2022 1:45 AM
observatory I see. It's quite counter intuitive. Normally when applying a low discount rate to future cash flows will result in a higher valuation. It seems that a lot of industry specific knowledge is required to get a handle on life insurers' valuation.
21/07/2022 12:58 AM
observatory Back to the topic of foreign insurers being forced to dispose 30% stake/ donation. Let's explore a bit.

You mentioned AIA/Prudential/Tokio Marine/Zurich. Assume their combined size in Malaysia is double of Allianz. Currently Allianz's market cap is ~RM4.5b (inclusive of ICPS). At a similar valuation, these four foreign insurers' Malaysian business equity value should be around RM10b.

If they are to be valued at say 50% higher, a 30% stake will worth around RM10b * 1.5 * 30% = RM4b to RM5b range. Not a small sum under current market condition, but still doable. For comparison, the twenty odd Bursa IPOs in 2021 including CTOS raised a total of RM2+ billion.

Who could be the buyers? Local banks like Affin and Am Bank have trimmed their insurance arms. Not sure if larger banks, especially the bancassurance partners of these foreign insurers will be willing to pay premium to acquire stakes.

I suppose GLIC like EPF, KWAP, Khazanah have the capacity to take a slice or even as sole partner. But again are they willing to pay premium?

The negotiation over valuation will not be easy. Don't see why these local investors would like to pay premium for insurers given the competitive market, especially listed insurers are currently priced below EVs. On the other hand, the foreign insurers could not justify to their shareholders if they sell on the cheap. Perhaps that was the reason that Great Eastern donated RM2billion?
21/07/2022 1:05 AM
wsb_investor GE donated the 2bil in a smart way, that's why you don't see a P/L impact of -2bil for GE, and why they opt for this donation. However, the same way is not possible for AIA and Pru. There is no way they will just donate anything. JV is more likely than IPO. Previously in 2018, Pru was exploring JV with KWAP. In term of big GLC, we still got KWSP and PNB. Khazanah already own Sunlife, not sure if will still keen to have a bigger stake.

AIA and Pru are more well established and have been constantly paying dividend, IPO is still OK option. Tokio Marine is much smaller size, and Zurich is still loss making, which make it hardest to fulfill the new regulation.
21/07/2022 9:47 AM
observatory Why did you say GE donated in a smart way? Why can't other insurers copy its way?
If the issue remains unresolved in time, what are the likely action by BNM? Stop them from underwriting new policies?
21/07/2022 8:12 PM
wsb_investor In 2011, ING Malaysia, with TEV of 952mil USD, VNB of 48mil USD, sold to AIA at 1.73bil USD. Allianz Life now with MCEV of 3.5bil MYR, VNB 275mil MYR, but Allianz market cap (with GI) = 4.47 bil MYR.
23/07/2022 10:26 PM
observatory True. We've discussed this point before. However, usually the full valuation can only be realized during M&A, where the buyers are willing to pay the full value for controlling stake. At normal times rational minority investors like EPF, who has no control over the company, are right to demand a discount as their margin of safety.
Similar behavior can be observed in other companies too, for example YTL Power. Based on the recent M&A case in the UK market, the full valuation of its UK asset alone is already a few times over its current market cap. Yet I believe the market is also rational to value the company based only on its dividend yield rather than more elusive asset valuation.
Personally, as a patient investor here, knowing the EV, NBV growth etc gives me peace of mind on the downside protection, while hoping for dividend to grow in the future. When that happens share price should follow. But it probably takes time.
24/07/2022 11:31 AM
observatory Annual reports showed that in 2013 the market cap reached RM4.2b. But PBT and shareholders' fund then were only half of today's.

I noted GWP growth hit 19.9% in 2013, before slowing to about 3% in 2015-17. Last year growth was 7.2%. Maybe the slower growth has made the stock less appealing to the market.
27/07/2022 11:50 PM
observatory LPI has just released Q2 results. Its motor net claims incurred ratio for 2Q22 is 88.8%, as compared to just 60.8% in 2Q21, and 76.3% in 1Q22. The ratio is around low 70% before the pandemic.

According to its press release, "The increase was due to a higher frequency of motor claims reported as most vehicles were back on the road, and due to the increase in average third party bodily injury claims reserve as a result of an increasing trend in court awards."

I wonder if the factor of court catching up with backlog will also show up in Allianz General claim ratio in Q2.
02/08/2022 6:56 PM
observatory "A landmark ruling by the Federal Court has held that victims of road accidents should be automatically compensated by insurance companies without requiring legal action to do so.
...
According to the report, of the eight appeals, five involved Pacific & Orient Insurance, Amgeneral Insurance, Allianz General Insurance Company, and Malaysian Motor Insurance Pool. The three-person bench, comprised of Rahman as well as Hasnah Mohammed Hashim and Rhodzariah Bujang, awarded RM150,000 in costs to each of the successful parties in the appeal.

The appeals came about as the insurance companies had obtained a declaration in the High Court to nullify the policies of motorists due to allegations of misconduct on the part of the vehicle owners, the FMT report said. This action had denied accident victims monetary compensation that had been due to them, prompting the appeals.
The appeals included a sambung bayar case, where the dispute arose when the vehicle owner attempted to claim on his vehicle following an accident.

However, he had “sold” his vehicle to a third party through such an arrangement, with the insurance company being unaware of this. When it learnt about this, it then obtained a declaration from the High Court to nullify the policy of the motorist, citing misconduct on the part of the vehicle owner. Following this, the insurer refused to cover the vehicle owner’s loss.

In another case, while the Sessions Court had found the driver of the other vehicle negligent after a full trial, the insurance company took a court order alleging it had been defrauded, and declined to pay the vehicle owner who was claiming for damages.

The case victim was eventually found to merely hold a paper judgement, which the Federal Court said was “not even worth the paper it was written on,” continuing that it was unfair because the victim’s constitutional rights to be treated fairly had been infringed"

https://paultan.org/2022/08/09/federal-court-rules-that-road-accident-victims-should-be-automatically-compensated-by-insurance-firms/

10/08/2022 12:16 PM
observatory With this ruling, motor insurance companies will automatically pick up the bill. It's only right that innocent accident victims should not go through the legal nightmare just because the motorists are at fault and insurance companies refuse to pay. But could there be unintended consequences?

With the ongoing liberalization, insurance companies need to better differentiate pricing based on motorists' past records, such as traffic summons.
10/08/2022 12:28 PM
wsb_investor ALLIANZ-PA 1 year high now, albeit mainly due to thinly traded
19/08/2022 1:35 PM
Papayashot Hi, may I know why the fair value loss for Allianz General is far far less than Allianz Life? I think most premiums will be invested in bonds right? Both Allianz General and Life invested in different types of bonds kah?
24/08/2022 6:24 PM
wsb_investor General liability shorter term, life liability longer term.
24/08/2022 7:15 PM
observatory It seems that life NBV growth remains weak. The presentation mentions lower sales volume from agency (slide 21, 23)
https://www.allianz.com.my/content/dam/onemarketing/azmb/wwwallianzcommy/pdf/investor-updates/2022/2022_Q2_AMB_Analyst_Briefing.pdf
24/08/2022 7:22 PM
Papayashot Hi observatory, it seems like the whole insurance industry NBV growth is kinda weak.. Wonder whether high inflation plays a role here
24/08/2022 7:24 PM
Papayashot can anyone advise on how the core profit number is calculated? Would it be fairer if compare core profit y-o-y?
24/08/2022 7:39 PM
observatory Yes, the demand is weak across the industry. In the current year prospect section, it mentions that the higher inflation may impact claim costs while lower disposable income may impact consumers’ purchasing power and spending on longer-term commitments such as insurance products.
24/08/2022 7:52 PM
observatory You may refer to slide 7 on core PBT calculation. It strips off the FV and tax effects.
24/08/2022 7:54 PM
Papayashot Hi observatory, from slide 7 of Analyst briefing, the fair value loss is -68.6 mil..
But in the Q2-2022 Quarter Report, the 6Month fair value loss is - 594 mil??

Am I wrong somewhere?
24/08/2022 9:59 PM
observatory Sorry I have no idea too. Maybe others can help explain.
24/08/2022 11:35 PM
wsb_investor 594 should be assets side impact only, whereas 69 is net position. Interest rate up will reduce bond MV and reduce liability concurrently.
25/08/2022 12:39 AM
observatory @wsb_investor, thanks for the explanation. It makes sense. Liability will reduce when the assumed discount rate is raised.
However is it common for insurance companies to change their discount rate assumption from quarter to quarter? This could open up opportunity for life insurers (probably not Allianz) to massage their profits in every quarter, despite such reported profit may not be reflective of long term company potential.
25/08/2022 11:57 AM
wsb_investor Most of the liability measure with latest interest rate assumption, except a particular block of business. Another issue is that, there are reserve that floored to 0, so in comparison, less sensitive to interest rate movement. e.g. bond value drop, but reserve still floor to zero.

All these will be gone under IFRS17.
25/08/2022 2:13 PM
Papayashot hi @wsb_investor, does that mean the reported profit will be less sensitive to the fair value gain/drop in the upcoming IFRS 17?
25/08/2022 2:41 PM
sheldon Fellow investors, don't you think that whilst rise in interest rates may be bad in terms of fair value, the new cash flows form coupons, dividends & premiums will be able to invest at higher yields?

So rise in interest rates is a boon to the insurance companies.

Comments welcome
29/08/2022 10:25 AM
wsb_investor exclude one off impact, higher interest rate always better for Insurer.
29/08/2022 11:34 AM
Papayashot wondering on how IFRS 17 will impact on the reporting on this investment fair value gain/loss in the income statement later on.... Any comments fellow investors?
29/08/2022 12:55 PM
wsb_investor Products measured under VFA will have minimal impact from investment fair value gain loss. Most of the products sold by Allianz will be under VFA.
29/08/2022 2:20 PM
Papayashot Quoted from RHB-OSK:
"under the new MFRS 17 standards effective 1 Jan 2023, underwriting profits are to be stretched out across the lifetime of the contract, whereas underwriting losses are charged to the income statement immediately."

Pretty surprising from their statement that the underwriting profit is stretched out throughout the contract period, whereas underwriting loss is charged into the income statement immediately...

RHB-OSK claimed that the reported profit in IFRS 17 might be lower..

Any comments on their statement above?

From their claim, it seems that the profit would emerge slower in IFRS17 as compared to the current accounting practice..
29/08/2022 2:20 PM
wsb_investor In general, profit will be slower, that is super general. Allianz Life has a very special concentration on ILP. This is from the AGM.

The Group do not provide forecast/estimates for financial results. It is observed that retained earnings would be higher under MRFS 17 as compared to the current MFRS 4 mainly contributed by faster profit emergence for investment-linked products, and deferral of acquisition cost.
29/08/2022 5:22 PM
Papayashot Hi wsb_investor, quoted from you "In general, profit will be slower, that is super general. "..

As in MFRS 4, profit for Allianz Life (mainly ILP) is already slow. How come in MFRS 17, profit will be even slower?
29/08/2022 6:02 PM
wsb_investor Sunlife IFRS17 investor education:
1. Traditional insurance business has higher impact driven by deferral of new business gains.
2. Higher expected profit recorded in early years for VUL products in Asia. (VUL here not exactly ILP, but ILP is much more profitable vs VUL)


https://www.sunlife.com/content/dam/sunlife/regional/global-marketing/documents/com/sun-life-may-31-ifrs-17-education-final.pdf
31/08/2022 2:59 PM
observatory A report from Am Investment Bank:
https://klse.i3investor.com/web/pricetarget/research/64791

The last point "Upon the adoption of FRS 17, the negative revaluation on the group’s life insurance’s investments which dampened the group’s net profit in FY21 and FY22 will no longer have any P&L impact from FY23F onwards. We understand that the marked-to-market changes in valuation of securities portfolio commencing from next year will flow through the comprehensive income."

Is that true?
22/09/2022 3:33 PM
wsb_investor That is a very general statement. Under IFRS17, there are 2 key measurement models (VFA/GMM). Assets hold can also further split into "assets backing liabilities" and surplus assets (excess assets above liabilities, mainly to support required capital). Only assets backing VFA liabilities will have 0 P&L impact on change in fair value. GMM business and surplus assets will still subject to the usual change in fair value impact.
23/09/2022 9:11 AM
observatory Thank you for the clarification.
Based on balance sheet as of Jun 30, the assets side has about RM20b investments, RM1b reinsurance asset. Insurance contract liabilities is RM18b.
Does it mean around 20 + 1 - 18 = RM3b of investments may still be subjected to FV impact post IFRS17?
24/09/2022 12:05 PM

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