Malaysian Re’s IFS rating affirmed by Fitch

Malaysian Reinsurance Bhd (Malaysian Re) has had its A — insurer financial strength (IFS) rating — affirmed by Fitch Ratings with a stable outlook, incorporating the firm's dominant position in the local market, its healthy capital position and prudent management.
A unit of MNRB Holdings Bhd, Malaysian Re is the country's leading reinsurance company and is an underwriter of general reinsurance business. Fitch is a global rating agency that covers entities in 90 countries, including IFS ratings of about 2,000 insurance companies worldwide.
In a recent statement, Fitch Ratings said Malaysian Re, as the national reinsurer, is the largest player in the local maket and it believes that its dominance is likely to remain unchallenged, mainly due to the voluntary cession arrangements that exist in the local market, which provide a sustainable premium base.
"Under the existing voluntary cessions market agreement, all local general insurance companies are required to cede a portion of their business to Malaysian Re.
"Consequently, Malaysia is the core market for (the firm), constituting over 80% of its total business. The company also actively participates in various local industry initiatives, which has helped strengthen its relationships with domestic insurance companies," it added.
Fitch said it viewed Malaysian Re's capital position as healthy and of very good quality, which consists of ordinary equity and retained profits with no debt issuance.
It said a RM20 million capital injection from its MNRB parent in April 2009 had further boosted paid up capital to RM500 million from RM480 million previously.
"Additionally, at the holding company level, there is above RM500 million of surplus capital, which could be a source of support if required," it added.
However, Fitch warned that, due to Malaysian Re's limited business geographical diversification, it faces the challenge of maintaining its good operating performance under current market conditions as well as the potential risk that the existing voluntary cession agreements could be reduced due to market liberalisation.
"Against the backdrop of a challenging business environment with poor investment sentiments, Malaysian Re's net income for its financial year ended March 31, 2009, is estimated by the company to reach about RM40 million, compared to RM85.1 million for FY08," Fitch said. — by Alfean Hardy

(This story appeared in The Malaysian Reserve on June 10, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on insurance & takaful called UNDERWRITER, appearing on alternate Wednesdays)

MNRB faces challenging conditions, says MARC

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.