Malaysia: Biggest domestic reinsurer’s underwriting results expected to be backed by

Malaysian Re’s underwriting performance is expected to be supported by portfolio remediation measures and the company’s ongoing business remodelling programme, said AM Best.

The reinsurer’s operating performance is assessed as adequate, with a five-year average return-on-equity ratio of 5.2% and a combined ratio of 101.1% between fiscal years 2019 and 2023, notes the global credit rating agency.

However, while the company continued to generate adequate operating performance in recent years, its underwriting performance has been slightly volatile due to domestic and foreign catastrophe losses, as well as various other large losses.

The company’s investment income, which mainly comprises interest and dividend income, remains a positive contributor to overall earnings.

Ratings affirmed

AM Best has affirmed Malaysian Re’s Financial Strength Rating of ‘A-’ (Excellent) and the Long-Term Issuer Credit Rating of ‘a-’ (Excellent). The outlook of these credit ratings is stable.

The ratings reflect Malaysian Re’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.

The reinsurer’s balance sheet strength is underpinned by its risk-adjusted capitalisation, which is expected to remain at the strongest level over the medium term, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s regulatory solvency ratio has declined in recent years, mainly driven by business growth and large losses, but has strengthened following its 2022 subordinated debt issuances.

AM Best views the company’s investment portfolio as generally conservative, whereby the majority of investments are allocated to term deposits, government bonds and good-quality corporate bonds.

Malaysian Re is subject to catastrophe risk exposures from both its domestic and overseas portfolios, although this risk is partially mitigated by the use of retrocession coverage through well-rated counterparties.

Business profile

Malaysian Re is the largest non-life reinsurer in Malaysia, with a dominant domestic reinsurance market share. The company benefits from a regulatory domestic cession arrangement, which provides it with access to a steady stream of profitable domestic business. This arrangement will remain in force until the end of 2024 when further renewals will be subject to future regulatory approvals.

AM Best views Malaysian Re’s underwriting portfolio to be increasingly diversified by geography, whereby approximately half of its gross premiums were sourced from outside Malaysia in fiscal year 2023. Future product and distribution channel diversification is expected to be supported by strategic expansion into non-traditional products and specialty lines, as part of the company’s ongoing business remodelling programme.

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