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)

MUNICH RE: World’s first microinsurance in the offing

By Alfean Hardy
Munich Re, a global leader in reinsurance, has teamed up with German government agency Deutsche Gesellschaft fur Technische Zusammenarbeit (GTZ) and Indonesian insurance firm Asuransi Wahana Tata (AWT) to launch the world's first microinsurance flood product.
The GTZ is currently active in numerous microinsurance projects and is helping to implement about 50 technical assistance projects globally in the field of social protection.
Microinsurance is being seen as a growing market, given that only 3% of the world's low income earners currently have access to insurance products. In a joint statement issued recently, the three parties said floods and inundation were a recurring threat to the livelihood of the people of Jakarta, Indonesia, and that impacts brought about by such disasters, such as property damage, higher medical expenses and rising food prices, constituted a heavy burden to those affected.
"The idea behind the joint project is to offer affordable, easy understandable and non-bureaucratic insurance cover specially adapted to this segment of the population. Instead of a lengthy policy document, the insured will receive a simple protection card that costs 50,000 rupiahs (RM16.75) per card and guarantees a one-off payment of 250,000 rupiahs (RM8,383) if the waters rise to or above 950cm (Alert 1) at the Manggarai Water Gate in Jakarta," they added.
The Alert 1 Manggarai Protection Card will offer the low income households in Jakarta with the opportunity to insure themselves against the direct economic losses and social risks brought about by severe flooding. Under the scope of the venture, AWT is to act as primary insurer and will be involved in the marketing, distributing and selling of the product. Munich Re developed its features and would also act as the sole reinsurer of the product.
GTZ was involved in researching the needs of the target group and also conducted a microinsurance awareness campaign within the pilot region of Jakarta.
The fourth largest country in terms of population, the World Bank has estimated that about 49% of the Indonesian population live below the US$2 (RM7.02) purchasing power parity rate. The local population is expected to hit the 243 million mark in 2010.
Susanne Krippner of the GTZ-supported Promotion of Small Financial Institutions programme in Indonesia said, "In developing countries in particuar, low income households are often those least protected against the financial and social consequences of natural catastrophies and other risks."
"Innovative microinsurance solutions can significantly improve the economic and social protection of the population and, thereby, contribute to the fight against poverty," she added.
Munich Re Asia board member Dr Ludger Arnoldussen said, "Thanks to Munich Re's risk management expertise and risk assessment we can help devise insurance solutions to cover people in exposed regions for whom protect ion was previously unavailable. It means that natural catastrophies will not automatically bring more poverty."
AWT president commissioner Rudy Wanandi said the project was an excellent chance to provide simple and affordable insurance cover to the low-income market combined with fast claims payment.
"With the right partners, a defined product and through our wide network within the region, we are able to reach people and explain our innovative solutions. It will raise the insurance awareness of society and bring more economic stability and social security to people who live in exposed regions," he added.

The Malaysian Reserve, May 13, 2009, p32

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.