Fitch Affirms Malaysian Reinsurance at IFS 'A-'; Outlook Stable

(The following statement was released by the rating agency) SINGAPORE, February 24 (Fitch) 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 strong capitalisation, which provides a buffer against adverse shocks, and its stable financial fundamentals and established market franchise in Malaysia. It 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 expanding foreign-business portfolio amid intense market competition. The Stable Outlook reflects Fitch's expectation that Malaysian Re's financial performance will normalise, driven by management's focus on bottom-line profitability and solid underwriting performance from voluntary cessions. The company's combined ratio was above 100% for the year ended March 2016 (FY16) and 1HFY17. For FY17, Malaysian Re has reviewed its underwriting guidelines and adopted a more selective business approach. The company also reviewed its retrocession structure to address adverse impacts of foreign currency fluctuations on claims. Fitch will continue to monitor Malaysian Re's underwriting performance, in view of the higher volatility in the performance from the overseas portfolio. Malaysian Re's capitalisation measured by regulatory risk-based capital (RBC) ratio remained well above the regulatory minimum of 130% at end-September 2016. Its investment mix remains focused on liquidity and capital preservation, as cash and deposits and fixed-income securities represented more than 80% of its invested assets at end-September 2016. 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. Malaysian Re is the leading reinsurer in Malaysia, with a market share of more than 50% by reinsurance accepted premiums in 2016. Fitch expects its market leadership to continue, underpinned by its strong branding and continued support from local cedants. The reinsurer also participates in various local industry initiatives regularly to strengthen its business relationships with cedants. RATING SENSITIVITIES Key rating triggers that could lead to a downgrade include a downgrade of Malaysia's Long-Term Local-Currency Issuer Default Rating (IDR) of 'A-/Stable', 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 as the Insurer Financial Strength rating is constrained by Malaysia's Long-Term Local-Currency IDR. Contact: Primary Analyst Christopher Han Associate Director +65 6796 7224 Fitch Ratings Singapore Pte Ltd. One Raffles Quay South Tower #22-11 Singapore 048583 Secondary Analyst Jeffrey Liew Senior Director +852 2263 9939 Committee Chairperson Siew Wai Wan Senior Director +65 6796 7217 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable Criteria Insurance Rating Methodology (pub. 15 Sep 2016) https://www.fitchratings.com/site/re/887191 Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr _id=1019489 Solicitation Status https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1019489 Endorsement Policy https://www.fitchratings.com/regulatory ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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