Malaysian Re has reported operating profits consistently over the past five years (fiscal-years 2016 to 2020), with an average combined ratio of 101% and return on equity ratio of 5%, notes AM Best.
Whilst recent underwriting results were affected adversely by natural catastrophe losses emanating from the company’s overseas portfolio, this was offset by the continuing favourable technical performance of its domestic portfolio, which benefits from a regulatory cession arrangement.
In addition, the company’s investment results, arising from interest and dividend income, have remained a significant contributor to overall profitability during the past five years. However, investment returns are expected to decrease over the near term, as domestic interest rates have fallen amid the COVID-19 environment.
AM Best views Malaysian Re’s business profile as neutral. The company is the largest general reinsurer in Malaysia with a dominant domestic market share.
The company benefits from a regulatory domestic cession arrangement, which contributes favourably to the overall premium volumes and technical profitability. However, this arrangement is subject to periodic regulatory review and approval.
Following competitive market conditions domestically and overseas, the company has sought to develop non-conventional product offerings and build partnerships to support knowledge transfer, as well as strengthen its risk selection and underwriting guidelines.
AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Malaysian Re. The outlook of these credit ratings is stable.
The ratings reflect Malaysian Re’s balance sheet strength, which AM Best categorises as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The company’s balance sheet strength is underpinned by its risk-adjusted capitalisation that is expected to remain at the strongest level over the medium term, as measured by Best’s Capital Adequacy Ratio.
Capital adequacy has been supported by Malaysian Re’s moderate underwriting leverage and a good quality retrocession panel, as well as from robust growth in shareholders’ equity from internal capital generation and capital raisings. In addition, AM Best considers the company’s investment approach prudent, with the majority of invested assets being placed in cash and deposits, as well as government bonds and good quality corporate fixed-income instruments.
A partially offsetting factor is Malaysian Re’s notable exposure to natural catastrophe risks arising from its overseas business, albeit the company has actively managed its peak peril exposures and reduced its participation in catastrophe excess-of-loss programs in recent years.
AM Best considers the company’s ERM approach to be appropriate given the size and complexity of its operations. Malaysian Re’s risk management framework also is integrated with its parent, MNRB Holdings, which promotes consistent and proactive risk management practices across the group.