Kurnia Group
Kurnia Asia to revive fortunes
THE EDGE DAILY - Monday, April 13th, 2009
By CHONG JIN HUN
As Malaysian consumers tighten purse strings during the ongoing global economic
crisis, the sale of big ticket items such as cars and real estate are expected
to be hit, a worrying trend which puts general insurer and Malaysia's largest
motor insurer Kurnia Asia Bhd in the spotlight, just as it is showing signs
of a turnaround.
The company's latest set of financials, while showing improvement, has been
marred by losses in its equity investments, resulting in a 1HFY2009 net loss.
Last month, Kurnia Asia also postponed its planned foray into the high growth
Cambodian market, citing unfavourable market conditions.
However, the good news is that the insurer, with a regional presence in Indonesia
and Thailand, has put in place a game plan to rejuvenate its fortunes.
"The number one thing we must do is to protect our home ground," Kurnia Asia
director Dr James Tee tells The Edge.
"We feel that now is not the right time to throw money outside the country.
We would rather conserve the cash now and focus on our Malaysian and existing
operations," says Tee, who oversees strategic planning and operational issues
across Kurnia Asia's regional businesses.
At a glance, the company's rejuvenation plan includes diversification initiatives
to reduce reliance on the firm's bread-and-butter motor insurance business,
widen its distribution channels and reorganise its investment portfolio.
"Tee says emphasis will be placed on growing its higher-margin non-motor portfolio,
which includes protection schemes for marine, fire and personal accident, up
to 30% of gross premium. Motor insurance constituted 83% of Kurnia Asia's portfolio
in 1HFY2009 ended Dec 31, while non-motor policies accounted for 17%.
"I foresee that, over the next 12 to 24 months, we are going to see more
non-motor products to support our sales," says Tee.
"The group also plans to venture into Islamic insurance or takaful. Considering
that Kurnia Asia does not own a conventional life insurance licence in Malaysia,
its foray into life and general takaful business is deemed crucial to help
the company break into the local life-protection segment.
A larger agency force is also in the pipeline. Kurnia Asia, which wholly owns
Kurnia Insurans (M) Bhd, plans to add some 1,000 agents - a 15% increase to
its existing agency force of 6,500. The insurer, with 3.5 million policyholders,
has 30 branches in Malaysia.
Kurnia Asia is now more risk-averse, with its RM1.9 billion investment portfolio,
of which fixed income instruments account for 50% of total assets. According
to Tee, the insurer has toned down its exposure in equities to just 4% compared
to a "double-digit" percentage previously.
"To protect our bottom line, we cannot afford to take that kind of volatility,"
says Tee, who anticipates the firm raking in investment gains in 2HFY2009,
after diving into negative territory in the first six months.
Kurnia Asia turned around in 2QFY2009, showing net profit of RM112,000 compared
with the previous quarter's pre-tax loss of RM12.1 million. The underwriting
business continued to improve from 1QFY2009, showing a surplus of RM5.7 million.
Cummulatively, its underwriting performance improved to a surplus in 1HFY2009
from a deficit in 1HFY2008 to a surplus. However, the insurer incurred a net
loss of RM12 million compared with a net profit of RM26.72 million a year earlier,
largely due to realised and mark-to-market losses in the company's investment
portfolio against a backdrop of poorer performance in the equities market.
According to notes to its accounts in its 2QFY2009 set of financials, the
company incurred finance expenses of RM10.7 million for a RM400 million term
loan. Claims ratio improved from 75.9% to 68.1% in 1HFY2009 as a result of
better claims management.
The firm has been actively expanding its regional presence in recent years.
Last April, Kurnia Asia announced a proposal to form a joint-venture company,
Cana Kurnia Insurance plc, with Canadia Investment Holding plc to offer general
and life insurance in Cambodia. Kurnia Asia was to own 49% of the company while
Canadia Investment would own the rest.
In Thailand, Kurnia Asia owns an associate stake of some 25% in Kurnia Insurance
(Thailand) Co Ltd (KIT). This follows Kurnia Asia's acquisition of existing
and new shares for RM15.56 million in KIT which has common shareholders with
Kurnia Asia.
Meanwhile, Kurnia Asia's Indonesian operations is undertaken via the firm's
80%-owned subsidiary PT Kurnia Insurance Indonesia.
Kurnia Asia's rejuvenation will be closely watched. Although this rough patch
may be viewed as a setback, the silver lining is that many companies are taking
the time to reassess their fundamentals to ride on the next wave of growth.