Malaysian Reinsurance is continuing to adopt selective underwriting and monitoring the underwriting results of the international portfolio to weed out unprofitable accounts, thus sustaining its profitability, notes Fitch Ratings.
The company was affected by several medium-sized claims, but COVID-19-related claims were minimal, the global credit rating agency says.
Fitch expects the pandemic-driven economic slowdown to place some pressure on Malaysian Re’s profitability but it believes the company’s fundamental operating profile will remain intact and its operating performance will normalise after the pandemic runs its course.
Fitch has affirmed Malaysian Re’s Insurer Financial Strength (IFS) Rating at ‘A’ (Strong) with a stable outlook.
The affirmation reflects Malaysian Re’s ‘Very Strong’ capital buffer and consistently profitable financial performance. This also takes into account its ‘Moderate’ business profile compared with its reinsurance peers and challenges in managing potential volatility in underwriting performance, especially from its overseas business, says Fitch.
Malaysian Re’s regulatory risk-based capital (RBC) ratio was well above the regulatory minimum of 130% in the financial year ended March 2020 (FY20), as well as at end-September 2020, and its score on Fitch’s Prism Factor-Based Model was well into ‘Strong’.
The company’s investment strategy is generally conservative and liquid, with more than 80% of its investments in cash, deposits and fixed-income instruments. Fitch estimates its risky assets ratio was about 41%, while its sovereign investment-to-capital ratio was 43% at 1HFYE21.
Malaysian Re’s business profile is ‘Moderate’ compared with that of other reinsurance peers. It has an established substantive domestic business franchise, although this is balanced by its ‘Least Favourable’ operating scale and somewhat geographically diversified business compared with global peers. Fitch therefore scores Malaysian Re’s business profile at ‘bbb+’ under its credit-factor scoring guidelines.
Malaysian Re had a more than 60% share in Malaysia by reinsurance accepted premiums in 2020. Fitch expects its market franchise to be sustainable, underpinned by its strong branding and continued support from local cedants as part of a regulated cession arrangement. The reinsurer also participates in various local industry initiatives to strengthen its business relationships with cedents.