RAM Ratings has affirmed the A1/Stable/P1 insurer financial strength ratings (IFS) of MCIS Insurance Berhad (MCIS Life or the Insurer) and the A2/Stable rating of its RM200 mil Tier 2 Subordinated Debt (2021/2031). The one-notch differential between the long-term IFSR and issue rating reflects the status of the notes as unsecured and subordinated obligations of MCIS Life.

The rating action considers the Insurer's comfortable capitalisation, conservative investment strategy compared to peers and healthy liquidity. MCIS Life's modest profitability and small presence in the competitive domestic life insurance industry (under 2% share of annualised premium equivalent in 2022 and 1H 2023) continue to moderate its ratings. 

The Insurer maintains a prominent focus on the lower-income segment, which differentiates it from other players. While this segment is relatively untapped compared to the better-insured mass and mass affluent income groups, MCIS Life's business growth of late has been tempered by keen competition, particularly from takaful peers. This along with lower consumer disposable income from the higher cost of living has dampened demand, translating to slower-than-industry new business (NB) expansion in FY Dec 2022 and 1H FY Dec 2023. Besides offering life policies to individuals, MCIS Life has been growing its employee benefit plans for corporates, which accounted for over half of total NB in recent periods. 

Pre-tax return on assets stayed modest, averaging 0.8% in the last three years (2020-2022). As the Insurer's investment performance recovered amid some moderation in bond yields, pre-tax profit was an improved RM33.1 mil in 1H FY Dec 2023 (1H FY Dec 2022: loss of RM44.4 mil). MCIS Life's profitability is weighed down by a high expense base. Its management expense and commission ratio of 35% in fiscal 2022 was higher than the industry average of 23%. Profitability is expected to be challenged until the Insurer can achieve scale and its earnings fr