ALLIANZ: Cost Efficiencies Drive Strong Earnings, Investment Bank Raises Target Price and Recommends Buy

A leading investment bank has upgraded its recommendation for a major Malaysian insurer to “Buy,” citing robust financial performance driven by significant cost efficiencies across its segments. The bank also raised its target price, reflecting an optimistic outlook on the company’s future growth trajectory.

Performance Overview

The company demonstrated strong momentum in its general insurance segment during 2Q25, expanding its market share by 1.0 percentage point year-on-year to 15.1%. This was propelled by an impressive 11.7% growth in gross written premiums (GWP), significantly outpacing the industry’s 4.0% growth in the first half of the year. Both motor and non-motor portfolios contributed to this robust performance, with motor premiums rising 11.5% and non-motor GWP increasing by 12%. Key drivers included strong renewal rates, an effective agency channel, and increased demand for travel insurance, construction projects, and data center coverage in Johor. The motor combined ratio stood at an efficient 92%, notably below the industry average of 103-104%, indicating strong operational efficiency.

Meanwhile, the life insurance business saw a sharp rebound in new business growth during 2Q25, rising 11.3% after a temporary setback in 1Q25. Year-to-date growth reached 0.6%, contrasting with the industry’s 7.4% decline over the same period. This turnaround was attributed to a strategic focus on higher-margin investment-linked products featuring co-payment options and automated payment features, which also improved the persistency ratio to 88.7% in 1H25. Crucially, the group successfully reduced its health loss ratio by 6-7 percentage points year-on-year through rigorous cost containment initiatives, wastage reduction, and tighter controls against abuse, managing medical inflation effectively.

Strategic Initiatives and Outlook

Looking ahead, the company is poised to further expand its motor market share to 24.6% by FY25, up from 24% in the first half, by prioritizing profitable motor underwriting and technical excellence. While a potential rise in claims during the fourth quarter due to the monsoon season is anticipated, the projected combined ratio for FY25 remains strong at 88.1%. In the life segment, the company aims to grow both its market share, currently at 12.1%, and profitability through broad-based growth across all key channels: agency, bancassurance, and employee benefits. Cost control and targeted agency recruitment remain top priorities to strengthen new business value and expand margins, with the loss ratio for investment-linked policies expected to remain below 85% in FY25.

The investment bank has revised its FY25-27 earnings projections upwards by 4-5%, driven by an increased general industry premium forecast. Despite the expansion of the Sales and Service Tax (SST) to 8% for commission-based financial services from September 2025, its impact on the company’s bancassurance segment is expected to be minimal, as the tax primarily targets commissions earned by banks. The general insurance segment remains unaffected due to B2B exemptions. The upgrade to “Buy” from “Hold” and the revised target price are based on a sum-of-parts valuation, reflecting an optimistic view following a recent share price decline.