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FOR IMMEDIATE RELEASE
HONG KONG - DECEMBER 13, 2012 12:00 AM (EST)
A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and issuer credit rating of “a-” of Malaysian Reinsurance Berhad (Malaysian Re) (Malaysia). The outlook for both ratings is stable.
The ratings acknowledge Malaysian Re's enhanced risk-adjusted capitalization while being exposed to the Thailand flooding, and its historical pattern of surplus growth driven by a consistent favorable retention of earnings. In addition, the ratings consider Malaysian Re’s leading market position in Malaysia due to its background as a national reinsurer.
Malaysian Re's risk-based capitalization has strengthened for fiscal year (FY) 2011, which ended March 31, 2012, as measured by Best’s Capital Adequacy Ratio. The reinsurer has been able to improve its capital position while being exposed to the Thailand flooding without raising capital, releasing reserves or disposing of its equity interest.
A.M. Best expects Malaysian Re's financial strength will steadily improve from FY 2013, as it focuses on the bottom line and quarterly monitors local risk-based capitalization.
Partially offsetting these positive rating factors are Malaysian Re’s adverse development of its net loss from the Thailand flooding, the potential impact of greater risk retention and to be discontinued voluntary cession on its profitability.
Late claims reporting from two cedants in September jeopardized Malaysian Re’s net loss from the Thailand flooding. The net claims amount is expected to stabilize and to slightly erode the financial strength on a risk-adjusted basis for FY 2012.
Although Malaysian Re is adopting a more conservative underwriting philosophy, greater risk retention could contribute to a more volatile underwriting result.
Positive rating actions may occur if Malaysian Re’s underwriting profitability and favorable earnings trends continue, underwriting performance of the overseas portfolio improves, capital surplus appreciates and risk-based capitalization strengthens. Conversely, downward rating actions could happen if the reinsurer’s underwriting result and overall income begin to fall or if risk-adjusted capital significantly deteriorates.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Understanding Universal BCAR”; “Catastrophe Analysis in A.M. Best Ratings”; “Evaluating Country Risk”; and “Risk Management and the Rating Process for Insurance Companies.”Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source.