Malaysian Reinsurance (Malaysian Re or the reinsurer) does not expect a substantial increase in claims arising from the COVID-19 pandemic due to limitations on claims for infectious and contagious diseases, notes RAM Ratings.
Nevertheless, the reinsurer had nonetheless made a conservative assessment and set aside MYR18.9m for potential COVID-19 related claims in the first half of the financial year ending March 2021 (1HFY2021 or April-September 2020).
Malaysian Re drove much of the MNRB group’s earnings improvements in FY2020 and 1H FY2021, as the latter’s pre-tax profits soared to a respective MYR150.9m ($37.3m) and MYR105.2m (FY2019: MYR119.4m; 1HFY2020: MYR99.1m) following a rebound in growth in the reinsurer’s overseas portfolio, says the credit rating agency.
RAM Ratings has reaffirmed MNRB Holdings’s (MNRB or the Group) and Malaysian Re’s ratings as follows:
MNRB Holdings Berhad
-MYR320m Sukuk Murabahah Programme (2019/-)
-Insurer Financial Strength Ratings
-MYR250m Subordinated Medium-Term Note Programme (2015/2030)
The one-notch difference between MNRB’s senior debt issue rating and Malaysian Re’s AA2 long-term insurer financial strength rating reflects the former’s structural subordination as a non-operating holding company and its moderate debt load at the holding-company level, says RAM Ratings.
The credit rating agency says that the rating action reflects MNRB’s dominant position in the domestic general reinsurance industry, where its primary subsidiary – Malaysian Re – had retained a significant share (66%) of the industry’s gross reinsurance premiums in 2019. Its well-established franchise in the domestic market is supported by regulatory voluntary cession (VC) arrangements and the reinsurer’s long-standing relationships with local cedants. The ratings also consider the Group’s subsidiaries’ healthy capitalisation and strong reserves coverage, although its volatile underwriting performance counterbalances these strengths.
MNRB’s credit profile hinges on Malaysian Re’s given that the latter is the largest contributor to the Group’s earnings. Apart from reinsurance, the Group also participates in the domestic general takaful and family takaful segments through subsidiaries Takaful Ikhlas General (IKHLAS General) and Takaful Ikhlas Family (IKHLAS Family) although these businesses are relatively small in terms of their earnings contribution to MNRB, as well as in their respective takaful segments. IKHLAS General has a 10.0% share of the general takaful segment’s gross contributions while IKHLAS Family contributed just 4.5% of the family takaful segment’s annual contribution equivalent in 2019.
The capital adequacy ratios of the Group’s main subsidiaries remained comfortably above their individual target capital levels and the regulatory minimum of 130% as of end-September 2020.