Best Rates Malaysian Re ‘A-‘

A.M. Best Co. has assigned a financial strength rating of “A-” (Excellent) and an issuer credit rating (ICR) of “a-” to Malaysian Reinsurance Berhad (Malaysian Re), both with a stable outlook.

“The ratings reflect the company’s excellent underwriting performance with limited volatility, well-established presence in the insurance market in Malaysia and low catastrophe exposure,” said Best. “Malaysian Re has an excellent underwriting performance. The company has consistently achieved an underwriting profit over the past ten years. Malaysian Re invests over 50 percent of its total assets in cash and fixed income securities which have provided a stable income stream. A double digit return on equity over the past five years has also demonstrated the strong profitability of the company.”

Best also noted that with “over thirty years of operating history in the region, the company has established a strong relationship with the ceding companies in Malaysia. The company has recorded over 50 percent reinsurance market share in Malaysia.

“Malaysian Re has maintained a low catastrophe exposure. The company limits its catastrophe exposure to a single event at 5 percent of its capital & surplus. The company has recorded only two events with net claims paid of over RM 10 million (USD 3 million) since its inception in 1973. As of year end of fiscal year 2005, the company’s capital and surplus stood at RM 487 million (USD 129 million).”

Offsetting factors, cited by Best, “include the revision of voluntary cession and the capital needs of its holding company.”

Concerning the cession agreements, Best noted: “Malaysian Re generates over 50 percent of its premium income from voluntary cessions agreements with ceding companies in Malaysia which require the ceding companies to cede 4-5 percent of their business to Malaysian Re. At the last revision of the voluntary cessions in fiscal year 2003, Malaysian Re experienced a sharp decline in gross premium income, but the corresponding reduction in the net premium income was marginal as the requirement to retrocede a portion of the voluntary cessions back to the industry was no longer applicable. The next revision will be in 2007. The company expects that the current 4-5 percent will be further lowered. The revision will have a negative impact to the company.”

The rating agency also indicated that “MNRB Holdings Berhad, the parent company of Malaysian Re, is now expanding its Takaful and Re-takaful business in Malaysia. The current and future capital needs to support the expansion of the other subsidiaries of MNRB Holdings Berhad may exert pressure on the capitalization of Malaysian Re.”