Malaysian Rating Corp Bhd (MARC) affirms its AAis rating on MNRB Holdings Bhd's (MNRB) RM200 million Islamic medium term notes (IMTN) programme with a Developing Outlook.
The affirmed rating of the investment holding company largely reflects the sustainable business profile of its core operating subsidiary, Malaysian Reinsurance Bhd (Malaysian Re) and its adequate, although weakened recent operating performance in the context of large rising claims and challenging financial market conditions.
The rating also incorporates prudent levels of financial leverage and strong debt service coverage at the holding company level. MNRB remains substantially reliant on dividend upstreaming by Malaysian Re to meet its debt service obligations and for the preservation of its financial flexibility.
The developing outlook reflects the challenging underlying operating conditions in reinsurance and insurance sectors and the likelihood for underwriting performance and investment earnings to remain pressured, both of which could expose MNRB's reinsurance, takaful and retakaful entities to potential volatility in capital strength.
MNRB is the holding company of Malaysian Re, Takaful Ikhlas Sdn Bhd (Ikhlas) and MNRB Retakaful Berhad. Malaysian Re, in turn, holds a 20% stake in Labuan Reinsurance (L) Ltd (Labuan Re).
The main profit contributing entity of the group, Malaysian Re, is the largest player in the domestic reinsurance market with a 61.9% market share of gross reinsurance accepted premiums in 2007.
This reflects existing voluntary cession (VC) market arrangements with local general insurers which will remain in force until end of 2009. Malaysian Re continues to make good progress in preparing for challenges arising from lower cessions from domestic insurers going forward.
This is evidenced by declining dependence on gross premium income generated by its VC business. Local and overseas treaty business has in recent years, contributed more significantly with share of revenue from VC declining to 49.1% in financial year (FY) 2008 (FY07: 53.8%).
Malaysian Re's underwriting results for the year ended March 31, 2008 and for the nine months ending December 2008, were adversely impacted by higher claims incurred.
The reinsurer's financial results for 1H09 showed a 61% drop in pretax profit to RM21.3 million compared to the corresponding period in FY08. The poorer performance is attributed to an underwriting deficit of RM8.8 million and a 25.5% decline in investment income to RM24.8 million (1H08: RM33.3 million).
Malaysian Re's risk-based capital (RBC) adequacy is expected to remain good based on its RBC parallel report as at end March-2008, which places Malaysian Re's total required capital at RM409.3 million against its total capital available of RM607.4 million.
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