AM Best has 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 outlook of these Credit Ratings (ratings) is stable.
The 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).
Labuan Re’s balance sheet strength assessment is underpinned by its risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which is at the strongest level at year-end 2022. The company adopts a prudent capital management approach to support risk-adjusted capitalisation at the strongest level over the medium term, along with an appropriate regulatory solvency position. AM Best views the company as having a moderate risk investment strategy with investment assets predominantly held in cash, deposits and high quality fixed-income instruments, albeit with a modest exposure to equities. Partially offsetting balance sheet strength factors include Labuan Re’s exposure to natural catastrophe risks relative to the size of its capital base, which emanates from its regional reinsurance operations and international operations through its participation in Lloyd’s syndicates.
AM Best views Labuan Re’s operating performance as adequate, with its overall earnings historically supported by robust investment returns. The company recorded an elevated average combined ratio of 105.6% over a five-year period between 2018 and 2022, primarily due to catastrophe-related losses. However, following remedial actions taken by management, the company’s underwriting performance improved in 2021 and 2022. Prospectively, AM Best expects an adequate level of operating performance to be maintained and underpinned by positive underwriting results and investment income, despite short-term volatility driven by unrealised fair value investment losses in recent periods.
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 through its participation as a corporate member in Lloyd’s syndicates. Labuan Re’s gross written premium has limited growth in recent years, partially due to a planned reduction in its participation in Lloyd’s business. However, AM Best expects the company to record moderate growth over the medium term, driven by product initiatives and its positioning in a generally hard reinsurance market. 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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