SINGAPORE--(BUSINESS WIRE)--AM Best has revised the outlooks to stable from negative and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of Labuan Reinsurance (L) Ltd. (Labuan Re) (Malaysia).
The Credit Ratings (ratings) reflect Labuan Re’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The revision of the outlooks to stable reflects AM Best’s expectation that Labuan Re’s rating fundamentals will remain commensurate with their current assessments over the near to medium term.
Labuan Re’s balance sheet strength assessment 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 (BCAR). AM Best views the company as having a moderate risk investment strategy with it holding a combination of low-risk assets, including cash, deposits and fixed-income instruments, albeit with notable exposure to higher-risk assets of non-rated fixed-income instruments, equities and real estate. Partially offsetting balance sheet factors include Labuan Re’s modest-sized absolute capital base and limited internal capital generation over recent years. In AM Best’s view, the company remains exposed to natural catastrophe risks emanating from its regional reinsurance operations, although Labuan Re has actively sought to reduce its peak peril exposures over the past few years.
AM Best views the company’s operating performance as adequate. Despite remaining pressured by a combination of catastrophe losses and COVID-19 related provisioning, remedial actions taken by management over recent years have supported incremental improvements in the company’s underwriting performance. Whilst AM Best expects the ongoing pandemic to drive a decline in investment yields over the near to medium term, operating earnings are expected to be supported by continued underwriting performance improvements, aided by a strengthening of reinsurance pricing/terms and the ongoing implementation of a program of remedial actions.
AM Best assesses Labuan Re’s business profile as neutral given its position 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 Lloyd’s of London syndicates. Over the medium term, AM Best expects the company to exhibit a declining trend in gross written premium, as it continues to reduce its participation at Lloyd’s of London. AM Best views the company’s ERM approach as appropriate given the current size and complexity of its operations.
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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