HONG KONG--()--A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and issuer credit rating of “a-” of Labuan Reinsurance (L) Ltd (Labuan Re) (Malaysia). The outlook for both ratings is stable.
“Risk Management and the Rating Process for Insurance Companies”
The ratings reflect Labuan Re’s adequate capitalization and its revised underwriting strategy to improve management of its underwriting risk.
In July 2012, Labuan Re issued subordinated bonds, which amounted to USD 55 million, in order to offset the losses from natural catastrophes that occurred in 2011 and from its participation in the run-off of syndicate 1965 through its investment in ACAL Holdings Pte Ltd.
In addition to the capital-raising exercise, Labuan Re has revised its underwriting strategies including reduction of its high risk overseas business in catastrophe-exposed markets or business with multi-territorial exposures, and tightened underwriting of highly unbalanced or unprofitable business. In A.M. Best’s opinion, Labuan Re’s risk-adjusted capitalization has been restored to an adequate level, which is supportive of its current ratings.
Offsetting these positive rating factors are the competitive reinsurance market in the region and the drag on Labuan Re’s profitability from the cost of servicing the subordinated debt.
Upward rating actions are unlikely in the near future. Conversely, negative rating actions could occur if Labuan Re’s operating performance materially deviates from its projections, or its risk-adjusted capitalization declines to a level below A.M. Best’s expectations.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Catastrophe Analysis in A.M. Best Ratings”; “Equity Credit for Hybrid Securities”; “Evaluating Country Risk”; “Insurance Holding Company and Debt Ratings”; “Risk Management and the Rating Process for Insurance Companies”; and “Understanding Universal BCAR.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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