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Relative to historical levels, liquidity metrics maintained a downward trend at FY20, a result of increased exposure to investment property in FY19 (44% of total investments). As such, stressed financial assets coverage of net technical liabilities measured at 1.7x (FY19: 1.7x; FY18: 2.6x) while operational cash coverage registered at 8 months (FY19: 7 months; FY18: 22 months). Management is in the process of selling part of the investment property, however in our view, downside risks to asset disposal is viewed to be high given the current economic situation.
Risk adjusted capitalisation and liquidity are expected to remain at similar levels over the outlook horizon. In this regard, the GCR CAR is likely to register between 1.7x and 2.0x while liquidity ratio could remain above 1.5x. Underwriting profitability is expected to remain in the negative territory due to high operating costs while investment income suppression may be sustained, reflecting a reduction in earning assets.Upward rating action may stem from an improvement in the asset quality leading to a strengthening risk adjusted capitalisation, liquidity and bottom-line earnings.