KUALA LUMPUR (Dec 12): Fitch Ratings has affirmed the insurer financial strength rating of Malaysian Reinsurance Bhd (Malaysian Re) at 'A', with a stable outlook, reflecting the company's "moderate" company profile and "very strong" capitalisation.

The affirmation also takes into consideration the challenges Malaysian Re, a wholly-owned subsidiary of MNRB Holdings Bhd (KL:MNRB), faces in managing potential volatility in underwriting performance as well as earnings dependence on local voluntary cessions, Fitch said in its rating commentary on the company recently.

Among the key rating drivers is the sharp improvement in Malaysian Re's underwriting performance in the financial year ended March 31, 2024 (FY2024), with an insurance/takaful service result of RM341 million, as opposed to a loss of RM2 million in FY2024, driven by lower catastrophe losses.

"It has also benefitted from tighter underwriting practices and favourable pricing conditions in recent years. Net profit rose to RM388 million, from RM57 million in FY23, as higher investment income was weighed down by a weaker insurance/takaful financial result," Fitch noted.

The reinsurer’s underwriting profitability is further bolstered by the profitable domestic voluntary cession business. "It remains focused on managing the potential volatility of its domestic non-voluntary cession and overseas businesses, and we believe this will be key to maintaining stability in its overall underwriting performance," Fitch said.

Malaysian Re's company profile is assessed as "moderate", with an established and substantive domestic business franchise, balanced by its 'least favourable' operating scale relative to international peers.

But any changes to the current cession arrangement — under which local general insurers cede 2.5% of their business to Malaysian Re — could impact its business profile and profitability, Fitch flagged.

This arrangement, which will be in place until end-2024, is reviewed regularly by the regulator, Bank Negara Malaysia.

Nevertheless, Fitch noted that Malaysian Re's overseas business contributed 60% of its gross written premiums in FY2024, up from 52% in FY2023, reflecting the company's strategy to mitigate risks and reduce reliance on local markets by expanding its geographic footprint.

It also noted that Malaysian Re’s score on the Fitch prism model — a model to assess the capital strength of insurers worldwide — remains ‘extremely strong’ at FY2024.

Malaysian Re’s investment mix is deemed very liquid by Fitch, as more than 80% of its invested assets were in cash, deposits, and fixed-income instruments as at FY2024.

Additionally, Fitch noted that its risky asset ratio — a measure of a bank’s capital in relation to the amount of risk it takes on — was low at 18%, same as in FY2023.