BY, SIOW CHEN MING
Idaman Unggul Bhd has finally resolved the solvency margin deficit in
its 100%-owned general insurer Tahan Insurance Malaysia Bhd.
In an announcement to Bursa Malaysia last Friday, Idaman Unggul said based
on the actual position of Aug 31, Tahan's solvency deficit has reduced
to only RM6 million. "Subsequently in September, Tahan managed to
offload the remaining non-admitted corporate bonds and raised RM24 million
which would effectively render Tahan solvent."
"It is important to us. When we meet the customer, we are able to
say we are solvent. This is more so in the case of the corporate customer,"
Datuk Che Mohd Annuar Senawi, executive chairman of Idaman Unggul, tells
The Edge.
Insurance companies, which are regulated by Bank Negara, are required
to hold investment assets known as "admitted assets". According
to the regulations, the total value of admitted assets should be more
than their insurance liabilities by a "solvency margin" of not
less than RM50 million. In a nutshell, the admitted assets should be more
than its liability by RM50 million.
Tahan had been in a solvency margin deficit position since 2003. As at
Dec 31, 2005, the deficit was RM175 million. That being the difference
between its admitted assets of RM282 million and liabilities of RM407
million and the solvency margin of RM50 million.
The RM175 million deficit was actually not as bad because Tahan had at
that time held RM86 million worth of bonds of either AAA or AA1 rating.
Despite their sound ratings, these bonds were not qualified as admitted
assets because they breached certain category sub-limit requirements imposed
by Bank Negara.
As of Aug 31, 2006, Tahan has reduced its liabilities to RM373 million,
after it sped up repayment of outstanding claims and reduced its exposure
in underwriting unprofitable segments such as motorcycles. Thus, with
the required RM50 million solvency margin, Tahan needs to have a pool
of admitted assets worth RM423 million (RM373 million plus RM50 million).
Tahan managed to increase its pool of admitted assets to RM417 million
as at Aug 31, from RM282 million earlier. This has reduced the deficit
to only RM6 million. The pool of admitted assets increased mainly after
Tahan netted RM121 million from the sale of its life insurance business
to Affin Holdings Bhd and AXA Asia Pacific Holdings Ltd. It also raised
some cash from the disposal of some bonds.
Last month, the company sold the remaining bonds and raised another RM24
million, putting its solvency margin at RM68 million instead of the required
RM50 million.
"So the issue is now behind us. We took a lot of beating, having
to sell the life business and book a RM11 million loss from the sale of
the bonds," says Annuar.
"Going forward, our investment policy will place more emphasis on
the security of investments while ensuring good returns. Insurance companies
are no good as insurance companies without the ability to insure and convince
customers that they are secure," he adds.
To counter competition from bank-backed general insurers, Tahan is exploring
niche markets where it could provide customised and value-added financial
products. One such market is the civil servants market, which has prompted
Tahan to establish collaborations with government cooperatives. Meanwhile,
the management is reviewing its existing underwriting businesses and cutting
down expenses.
Tahan recently completed a voluntary separation scheme (VSS), which shed
about a quarter of its workforce of about 500. The VSS is expected to
save Tahan some RM7 million a year in terms of lower staff costs and the
consolidation of office space. As a result, annual operating expenses
are expected to come down to about RM31 million from RM41 million last
year. This will also help Tahan meet the industry's average management
expense ratio of about 25% next year.
Annuar envisages that Tahan will perform better in FY2007 than FY2006
and FY2005. In FY ended Dec 31, 2005, it reported a net deficit of RM19.77
million on a turnover or net premium of RM104.24 million.
Timber concession
At the holding company level, Idaman Unggul is exploring joint ventures
for the timber concession in Sabah. Idaman Unggul's wholly-owned subsidiary,
Lambang Pertama Sdn Bhd, owns 100% of Idris Hydraulic (M) Bhd which holds
the timber concession.
"We are talking to a few parties for a JV regarding the timber concession,"
says Annuar, citing that a Japanese party as well as a local listed company
have expressed interest.
The timber concession is valued at RM286 million based on the commercial
value of logs allowed to be harvested under natural forest management
practice. Under the management practice, only trees greater than 60cm
dbh (diameter at breast height) are to be cut.
But the concession could be worth more. Idaman Unggul is awaiting approval
from the Sabah government to undertake an integrated timber plantation
project on a 50,000ha site that is perceived to be poor in commercial
vegetation. Before planting, this would allow the company to clear and
fell trees greater than 20cm dbh, which could bring in extra revenue.
The timber concession is part of Idris Hydraulic, whose listing status
has been transferred to Idaman Unggul.
The Idris Hydraulic part of the business is, however, not reflected in
Idaman Unggul's financial statements. This is because, under the previous
restructuring and reverse takeover by Idaman Unggul of Idris Hydraulic,
the latter's businesses were to be disposed of or being liquidated for
the repayment of about RM234 million redeemable secured loan stocks, which
is due November next year.
However, as log prices have gone up, Idaman Unggul is looking for ways
to maximise value from the timber concession through joint ventures with
timber players. If this happens, the RSLS would have to be restructured.
This is because the timber concession constitutes the bulk of value for
the repayment of the RSLS.
|
