SINGAPORE--(BUSINESS WIRE)--A.M. Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Labuan Reinsurance (L) Ltd (Labuan Re) (Malaysia).
The ratings reflect Labuan Re’s balance sheet strength, which A.M. Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
The revision of the outlooks to negative reflects A.M. Best’s concern over the company’s ability to maintain its adequate operating performance, amidst challenging market conditions, as it faces execution risk in remediating its underwriting portfolio.
Its Lloyd’s business, which generates about half of Labuan Re’s premiums, has been impacted by large claims events in 2017 and 2018. The company’s domestic business also was impacted by several large fire losses. While the full extent of the 2018 losses is not yet known, A.M. Best expects the company’s combined ratio to remain elevated. In response, the company has decided to review its participation in several of the Lloyd’s syndicates and also will re-examine the composition of its non-Lloyd’s portfolio. However, execution risk will be present as the company adjusts its portfolio.
Nonetheless, Labuan Re’s risk-adjusted capitalization remains solid. The company’s underwriting and investment portfolio are geographically diversified, and the company also refinanced a USD 55 million subordinated bond issue that supports its balance sheet. In addition, Labuan Re has purchased earlier in the year a stop-loss cover for its Lloyd’s portfolio that will likely reduce losses from the above-mentioned events. The company also is exploring opportunities to introduce new products into Malaysia with foreign partners.
An offsetting rating factor is Labuan Re’s limited control over the risks in its Lloyd’s portfolio and the length of time needed to obtain reported results. Additionally, the limited scale of Labuan Re in the highly competitive reinsurance market also constrains its ability to select risks and could affect its remediation efforts.
Negative rating actions could occur if there is no considerable improvement in the company’s underwriting results or if the company’s business profile weakens. A revision of the outlooks to stable could occur if Labuan Re can substantially improve and sustain its underwriting performance while maintaining its solid risk-adjusted capitalization.
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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