A.M. Best Affirms Ratings of Labuan Reinsurance (L) Ltd
SINGAPORE – NOVEMBER 21, 2019
AM Best has affirmed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “a-” of Labuan Reinsurance (L) Ltd (Labuan Re) (Malaysia). The outlook of these Credit Ratings (ratings) remains negative.
The ratings reflect Labuan Re’s balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
Labuan Re’s balance sheet strength assessment is underpinned by risk-adjusted capitalization that remains at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). AM Best views the company to have a conservative investment portfolio, with a focus on good quality fixed-income securities. Partially offsetting balance sheet factors include the company’s modest-sized absolute capital base and limited internal capital generation over recent years. In addition, the company has notable exposure to natural catastrophe risks emanating from its regional reinsurance operations and through its participation in several Lloyd’s of London syndicates with international exposure.
AM Best views Labuan Re’s operating performance as adequate, albeit the continued negative outlook on the FSR and Long-Term ICR reflects pressure on this assessment. Over recent years, the company’s underwriting performance has been impacted adversely by a series of global catastrophe events and from an increased frequency of large losses on its domestic fire portfolio. The company’s combined ratio reached 115% in 2018, with a five-year average of 105% (2014-2018). Prospectively, AM Best expects the company to continue implementing remedial actions aimed at returning it to a position of technical and operating profitability over the near term. However, AM Best continues to note that challenges remain in executing this business plan amid the persistent competitive operating environment in many global reinsurance markets.
AM Best assesses Labuan Re’s business profile as neutral given its positon as a well-established regional non-life reinsurer. In addition, the company’s business profile continues to benefit from portfolio diversification emanating from its participation as a corporate member in several Lloyd’s of London syndicates. Over the medium term, AM Best expects the company to exhibit limited premium growth, as it continues to embark on a voluntary retrenchment of unprofitable business in light of persistent competitive conditions in some markets.
AM Best views the company’s ERM approach as appropriate given the current size and complexity of its operations. Labuan Re continues to develop its technical pricing and risk selection tools and capabilities as part of its remedial actions aimed at improving its prospective underwriting performance.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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AM Best is a global credit rating agency, news publisher and data provider specializing in the insurance industry. The company does business in more than 100 countries. Headquartered in Oldwick, NJ, AM Best has offices in cities around the world, including London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.