SINGAPORE--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Malaysian Reinsurance Berhad (Malaysian Re) (Malaysia).The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Malaysian Re’s balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
Malaysian Re’s balance sheet strength assessment is underpinned by risk-adjusted capitalization that remains comfortably at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s capital and surplus has exhibited a strong growth over recent years from retained earnings. In fiscal year 2019, a capital injection of MYR 100 million (USD 24.5 million) from its holding company, MNRB Holdings Berhad (MNRB), has strengthened its capital position to support business growth. In addition, the company has a conservative investment portfolio, with a focus on good quality fixed-income securities. AM Best views the company’s underwriting leverage as low compared with its peers. Offsetting balance sheet considerations include the company’s increased risk retention level based on the revised retrocession excess-of-loss protections. Nonetheless, the company has a higher capital buffer to absorb the current underwriting risks following the capital injection.
AM Best views the company’s operating performance as adequate. The company’s operating results have outperformed many of its regional peers, with a five-year average operating and return-on-equity ratios of 90.3% and 6.1%, respectively (fiscal year 2015-fiscal year 2019). The company has demonstrated its capability to generate positive underwriting performance with a five-year average combined ratio of 99.5% (2015-2019), with volatilities in the underwriting profitability due to large and catastrophe losses. The loss ratios have improved over the past two years as a result of business transformation initiatives implemented to improve underwriting margins.
AM Best assesses Malaysian Re’s business profile as neutral. Malaysian Re is a dominant market leader in Malaysia’s non-life reinsurance market. The company benefits from a regulated cession arrangement (voluntary cession, VC) which contributes significantly to its premium revenue and overall profits. The continuation of the VC arrangement is subject to periodic regulatory review. Additionally, increasing consolidation among local insurers has lowered the demand for reinsurance capacity. In response, Malaysian Re has grown its overseas business over the past years, which has proven to be more volatile and less profitable than its domestic portfolio. Nonetheless, gross premiums from overseas markets have diminished since 2017, as the company implemented a business transformation program to focus on maintaining profitability and sustainable growth in line with its risk appetite statement.
AM Best views the company’s ERM approach as appropriate given the current size and complexity of its operations. Malaysian Re has adopted an enterprise-wide risk management structure. Key risks are identified and measured on a frequent basis, and the company continues to enhance its ERM capability.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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