OREANDA-NEWS. Fitch Ratings has affirmed Malaysian Reinsurance Berhad's (Malaysian Re) Insurer Financial Strength (IFS) Rating at 'A' with Stable Outlook.

KEY RATING DRIVERS

The rating affirmation reflects Malaysian Re's solid capitalisation to withstand adverse shocks, stable financial fundamentals and strong market franchise in Malaysia. The rating also takes into account its smaller absolute market size and limited geographical diversification compared with global peers, as well as potential catastrophe exposure in its foreign business portfolio amid intense market competition.

The Stable Outlook reflects Fitch's expectation that Malaysian Re will improve its financial performance, driven by management's strong focus on bottom-line profitability.

Malaysian Re's capitalisation measured by regulatory risk-based capital (RBC) ratio remained well above the regulatory minimum of 130% at end-September 2015. This is primarily driven by its good capital management practices and surplus growth over the years. Its investment mix remained prudent and liquid, as cash and deposits and fixed-income securities represented more than 80% of its invested assets at end-September 2015. Malaysian Re's exposure to risky assets such as equity securities is limited and we do not expect its investment strategy to deviate significantly in the near term.

The company's operating performance measured by combined ratio deteriorated to 116% at end-September 2015 from 94% at end-March 2015 (end of FY15) due to higher net claims incurred. This mainly arose from a few large losses in both its domestic and overseas business during the year, including the Tianjin port explosion in August 2015. Since then, the reinsurer has reviewed its underwriting guidelines and adopted a more selective business approach. It plans to further reduce its exposure in catastrophe-prone regions and restructure its retrocession programme to lower net retained losses. Fitch will continue to monitor Malaysian Re's underwriting performance cautiously, in view of its volatile overseas business portfolio.

Malaysian Re maintained its pole market position in Malaysia with a market share of more than 50% by reinsurance accepted premiums in 2014. Fitch expects its market leadership to continue, underpinned by its strong branding and continuous support from local cedants. The reinsurer also actively participates in various local industry initiatives regularly to strengthen its business relationships with cedants.

RATING SENSITIVITIES

Key rating triggers for a downgrade include a weakening of its market franchise, significant decline in capitalisation with the regulatory RBC ratio falling below 180% persistently and deterioration in operating performance with the combined ratio increasing to above 105% for an extended period.

An upgrade is unlikely in the near term. Nevertheless, key rating triggers for an upgrade include significant sustained improvement in the reinsurer's credit profile, with the combined ratio falling consistently below 94%, and the regulatory RBC ratio remaining above 220%.