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CHAIRMAN’S STATEMENT On behalf of the Board, it is my pleasure to present the Annual Report of Labuan Reinsurance (L) Ltd Group (the Group) for the financial year ended December 31st, 2010. I am pleased to report that for the financial year ended December 31st, 2010, the overall operating revenue for the year showed an increase of 6.1% at USD256,660,395 compared to the previous year of USD242,110,169. The operating revenue was made up of gross premium income of USD242,848,400 and investment income of USD13,811,995. The Group recorded a growth of 4.5% in gross premium income at USD242,848,400 compared to the previous year’s figure of USD232,424,215. Premium income from the overseas business represented 75.6% of the Group’s overall premium volume (inclusive of the business derived from Lloyd’s). The re-affirmation of the financial strength rating of "A–" by A.M. Best Company and Fitch Ratings had contributed to the growth of business from the overseas’ markets. Nevertheless, the Group has continued to exercise its strict underwriting standards on all renewal and new business offers with the objective of achieving quality premium growth and well balanced profitable business portfolio for each territory. Net claims incurred for the Group was USD128,771,805, representing an increase of 4.5% compared to the previous year of USD123,210,718. After providing for the net claims incurred and the net commission, the Group posted an underwriting profit before management expenses of USD15,066,760. The Group’s net investment income increased by 42.6% in 2010 to USD13,811,995 compared to USD9,685,954 in the previous year. The increase was mainly attributed to the realization of gains from the equity investments. After taking into account fees and commission expenses of USD60,747,585, management expenses of USD13,536,373, other operating expenses of USD2,942,489, taxation of USD29,739 and zakat payment of USD5,302, the Group recorded a lower net profit of USD13,053,437 for the year compared to USD13,958,344 in 2009. The lower net profit was attributed to the Company’s underwriting performance for both non-Lloyd’s and Lloyd’s segments being affected by some notable catastrophe losses such as the Aban Pearl Oil Rig in Venezuela, fire at Central World Plaza in Bangkok, the earthquake in Chile, windstorm Xynthia in Europe and the Deepwater Horizon crude oil leakage in the Gulf of Mexico. The Group’s solvency surplus at the end of 2010 has improved to 396.2% of the required margin from 379.4% recorded in 2009. The improvement in solvency surplus was attributed to the increase in net assets caused by the profit recorded and the FRS139 adjustment in 2010. Management is continually taking active steps to moderate the Group’s premium growth by implementing selective underwriting. The other financial details are included in the Audited Accounts as shown on pages 13 to 100 of the Annual Report.
For the year under review, the Group experienced a very challenging underwriting environment. Although the Company’s underwriting performance was affected by some notable catastrophe losses as mentioned above, there was only a slight decline in the net profit. While new business opportunities continued to present themselves to the Company due to the affirmation of its A- rating by A.M. Best Company and Fitch Rating, the primary insurance and reinsurance market conditions in most markets continued to be intensely competitive, resulting in generally soft market terms, conditions and pricing. The Company’s 2010 investment result was positive for the year under review. The investment portfolio had performed admirably in the face of challenges compared to 2009. This was due to the favourable financial market performance which saw the realisation of positive gains from the equity portfolio as market valuations improved.
The Division’s gross retakaful contribution has increased by 22.56% to USD2.81 million from USD2.29 million recorded in 2009. A net surplus of USD82,827 was also recorded by the retakaful fund mainly due to the decrease in its unearned contribution reserve.
The Bahrain Branch registered a decrease of 5.8% in its 2010 gross premium at USD17,816,456 compared to the previous year of USD18,911,362. This is a consequence of the continued policy from 2009 where lapsing of non-profitable businesses was carried out. For the year under review, the Bahrain Branch posted a profit of USD1.4 million attributable mainly to the improved book of business. The Company feels that business from markets serviced by the Branch can also be effectively done from the Kuala Lumpur marketing office. Therefore, as part of cost rationalization, as well as being in-line with the Company’s 3rd Strategic Plan, the operations of the Bahrain Branch will be re-located to Kuala Lumpur in early 2011
In 2010, the Company had provided for GBP59.7 million capacity in Syndicates 1084, 1176, 2121 and 4242 that has yielded a profit of USD10.6 million.
The Company’s financial strength rating of ‘A- (Excellent) was affirmed by A.M. Best Company on March 4th, 2011. Fitch Ratings had also affirmed the ‘A-‘ Insurer Financial Strength rating of the Company on December 2nd, 2010. The rating by both rating agencies is a testament on the well balanced portfolio with diversified geographic risk, stable underwriting performance and a conservative investment mix.
Global economy is expected to grow modestly in 2011 with the emerging and developing economies outpacing the industrialised economies. Inflationary risk though will be a key concern to most emerging and developing countries as central banks are more likely to tighten monetary policy which may derail economic growth. Insurance industry is undergoing a challenging time with a high level of catastrophe losses and continued low interest rates. For 2010, there has been a high incidence and severity of catastrophe losses such as the Haiti earthquake, Chile earthquake, windstorms/floods in Europe, floods in Pakistan and China, Deepwater Horizon undersea oil rig and earthquake in Christchurch, New Zealand. Although there may be a certain degree of hardening of terms and pricing in some reinsurance markets due to the impact of natural catastrophe occurrences, this will be limited to lines and segments that have experienced high losses. In the aftermath of the Deepwater Horizon, energy rates in certain sectors are rising. With this in mind the Company will continue to adopt a conservative and cautious underwriting strategy for 2011 to ensure enhancement of the quality and stability of its business portfolio. Investment strategies will be re-positioned whenever necessary to account for market developments. Nevertheless, capital preservation will remain as the Company’s overriding investment principle. It is anticipated that 2011 would bring formidable challenges on all fronts especially financial market turmoil as well as political instability. The changing global weather patterns would again feature prominently in the underwriting performance in 2011.
The profitable results would not have been made possible without the continued commitment and dedication of the management and staff of Labuan Re, and on behalf of the Board members, I would like to extend my gratitude to all of them. I would also like to express my sincere appreciation to all the shareholders, ceding companies and the Office of the Director-General of the Labuan Financial Services Authority (Labuan FSA) for their continuous support to the Company. Finally, I wish to record my appreciation to all my fellow Directors for their continuous assistance, support and guidance during the year. SHARKAWI ALIS |