Published on 07 Feb 2020.
RAM Ratings has reaffirmed Malaysian Reinsurance Berhad’s (Malaysian Re or the Reinsurer) AA2/Stable/P1 insurer financial strength (IFS) ratings. Concurrently, the AA3/Stable rating of the Reinsurer’s RM250 million Subordinated MTN Programme (2015/2030) has been reaffirmed. Securities issued under the MTN Programme are rated one notch below Malaysian Re’s long-term IFS rating to reflect their status as an unsecured and subordinated obligation of the Reinsurer.
The reaffirmation of the ratings is premised on Malaysian Re’s established domestic franchise, which is supported by long-standing relationships with local cedants and voluntary cession (VC) arrangements which have been renewed at a rate of 2.5% for all classes of business until 31 December 2020. Healthy capitalisation, strong reserve coverage and adequacy liquidity are also factors supporting the ratings, moderating the Reinsurer’s exposure to higher-risk overseas businesses which have in the past contributed to earnings volatility.
The Reinsurer’s gross premiums fell 12% to RM1.1 bil in FY Mar 2019 due to a combination of lower domestic and overseas premiums. The decline in domestic premiums was attributable in part to the rationalisation of public infrastructure projects, while premiums from overseas businesses continued to trend downwards in tandem with its portfolio rebalancing plans and the enforcement of stricter underwriting discipline. This, coupled with higher management expenses and a weaker claims performance, caused the Reinsurer to record an underwriting deficit of RM8 million in FY Mar 2019, increasing its combined ratio to 100.8% (FY Mar 2018: underwriting surplus of RM47 mil and combined ratio of 96.1%). With lower investment income, Malaysian Re’s pre-tax profit was a more subdued RM94 mil (FY Mar 2018: RM126 mil).
The underwriting performance of Malaysian Re’s overseas business is exposed to various exogenous factors including global capacity and pricing, as well as catastrophe risks that translate into higher volatility in underwriting results. Its fiscal 2019 claims experience included large claims relating to Typhoon Jebi in Japan and sizeable losses from the fire and marine hull segment. Going forward, the Reinsurer’s strategies include the development of new products such as specialised coverage for cyber, liability and agriculture risks. Malaysian Re is a capital provider to a Lloyd’s syndicate and recently became a capacity provider to the international reinsurance programmes of a managing general agent for facultative property risks. These arrangements allow the Reinsurer to leverage on and learn from the underwriting expertise of its partners. As it is a new entrant with limited knowledge and expertise in these markets, however, rapid growth could be a concern.
Although significant year-to-date domestic losses have pressured its profitability, Malaysian Re’s 1H FY Mar 2020 pre-tax profit was a better RM54 mil (1H FY Mar 2019: RM50 mil), backed by an improvement in gross premiums and investment income. Capitalisation remains comfortably above the Reinsurer’s internal capital target level and is expected to stay adequate for its current risk profile, notwithstanding the optimisation of retrocession arrangements and increased investment risks with more active portfolio management.
As at end-September 2019, Malaysian Re’s net technical reserves ratio had climbed to 167.9% (end-March 2018: 155.4%), supported by initiatives to improve its reserving practices. The Reinsurer also has liquidity buffers to meet potential short-term claims and liabilities, with liquid assets of RM1.8 billion as at end-March 2019 amply exceeding short-term insurance liabilities of RM794 million as at the same date.
Ann Kimberly Lee
(603) 3385 2533
(603) 3385 2577
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Ratings on Malaysian Reinsurance Berhad