RAM reaffirms rating on Malaysian Reinsurance

PETALING JAYA: RAM Ratings has reaffirmed the “AA2” rating on Malaysian Reinsurance Bhd (Malaysian Re) on the back of its improved year-on-year financial performance, portfolio optimisation initiatives, positive reserve capitalisation and liquidity position as well as extension of voluntary cession (VC) arrangements.
RAM Ratings also reaffirmed “AA3” rating on Malaysian RE’s RM250 million subordinated Medium-Term Note (MTN) Programme (2015/2030) Malaysian RE, which is a wholly owned subsidiary of MNRB Holdings Bhd, that registered a “healthier pre-tax profit” of RM100.4 million in the financial year ended March 2017 against the RM7 million registered in the previous year, due to narrower underwriting losses and higher investment income amid improved market conditions.
Its gross premium for the same period was 6% lower at RM1.3 billion, due to its portfolio rebalancing exercise, which involves exiting unprofitable markets and business lines.
Nonetheless, the extension to VC arrangements until December 2019 is expected to contribute to earnings stability over the intermediate term.
Under the VC, local general insurers are required to cede a percentage of their business to Malaysian Re, which in turn will provide a stable base for domestic earnings growth, although future premium increases will largely depend on overseas business traction.
In terms of claims, Malaysian RE’s domestic business saw a narrowed loss rate on account of lower large and attritional losses while the overseas portfolio was more volatile and remained a drag to its underwriting performance.
Its reserves coverage stood strong as at end Sept 2017 with a net technical reserves to net earned premiums ratio of 147% while its capital adequacy ratio also improved to 207% in the same period supported by the accretion of profits for the period, which is seen as sufficient for the current reserve levels.