|
|
|
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, 2009. For its 2009 financial results, Labuan Re (the Company) was able to return to profitability due to an improved investment climate coupled with the absence of severe catastrophic losses during the North Atlantic hurricane season.
I am pleased to report that for the financial year ended December 31st, 2009, the overall operating revenue for the year showed an increase of 6.5% at USD242,110,169 compared to the previous year of USD227,413,152. The operating revenue was made up of gross premium income of USD232,424,215 and investment income of USD9,685,954. The Group recorded a growth of 7.5% in gross premium income at USD232,424,215 compared to the previous year’s figure of USD216,181,901. Premium income from the overseas business represented 78.9% of the Group’s overall premium volume (inclusive of the business derived from Lloyd’s). The reaffirmation of the financial strength rating of "A–" by A.M. Best Company had resulted in more business being offered from the overseas’ markets, both in terms of existing and new clients. Nevertheless, the Group continues with its prudent underwriting and has adopted the strategy of re-allocating its capital to more profitable markets. Net claims incurred for the Group declined to USD123,210,718, representing a decrease of 5.8% compared to USD130,773,530. After providing for the net claims incurred and the net commission, the Group posted an underwriting profit before management expenses of USD15,701,011. The Group’s net investment income decreased by 13.8% in 2009 to USD9,685,954 compared to USD11,231,251 in the previous year. This was mainly attributed to the decrease in the rates of the cash deposits, as well as the lower dividends received from its investee companies. After taking into account management expenses of USD12,075,241, net other income less expenditure of USD5,021,046, taxation of USD40,858 and zakat payment of USD8,895, the Group recorded a net profit of USD14,725,186 for the year compared to a loss of USD6,074,839 in 2008. The net profit was inclusive of the net wakalah fee income of USD445,877 from the general retakaful fund, the share of loss of USD3,686,645 from ACAL Holdings Pte Ltd (ACAL) and the provision of USD317,063 for its doubtful debts. On December 4th, 2009, Mitsui & Co., acquired 64 million new ACAL shares. Hence, the Group's equity interest in ACAL has been diluted to 14.4% (from 26.7%), and the Company’s board representation to ACAL was reduced from 2 members to 1 member. As such, the Company no longer exercises significant influence in the management of ACAL from that date. The investment in ACAL has now been reclassified from an associate to an investment in unquoted shares. The Group’s solvency surplus at the end of 2009 decreased further from 439.3% in 2008 to 381.9% of the required margin. The decline in solvency surplus was attributed to the increase in net premium underwritten for the year and the increase in net assets caused by the profit recorded in 2009. Nevertheless, the present surplus of 381.9% is still healthy as far as the regulatory requirement is concerned. Nonetheless, Management is 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 75 of the Annual Report.
For the year under review, the Group experienced a very challenging underwriting environment. While new business opportunities continued to present themselves to the Company due to the reaffirmation of its A- rating by A.M. Best Company, 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 underwriting performance was also affected by its involvement in some notable catastrophe claims such as the earthquake in Padang, Indonesia, Typhoon Morakut affecting Taiwan and certain coastal parts of China, extensive flooding in Istanbul, Turkey, Typhoon Ketsana causing extensive flood / destruction in Manila, Philippines and central Vietnam. The Company’s 2009 investment results had improved compared to 2008 due to the favourable financial market performance which saw the substantial reversal of its provisions principally from the equity portfolio as market valuations improved.
In its second year of operation, the Division’s gross retakaful contribution to the retakaful fund has increased by 7% to USD2.29 million from USD2.14 million recorded in 2008. However, a net deficit of USD431,587 was recorded by the retakaful fund mainly due to the increase in its unearned contribution reserves, wakalah fees payment and net claims incurred.
The Bahrain Branch registered a decrease of 14.4% in its 2009 gross premium at USD18,911,362 compared to the previous year of USD22,096,292. This was mainly due to the lapsing of non-profitable businesses. For the year under review, the Bahrain Branch posted an underwriting result of negative USD5.1 million attributable mainly to the losses incurred from the Istanbul floods.
In 2009, the Company had provided for GBP57.25 million capacity in Syndicates 1084, 1176, 2121 and 4242. After posting negative results in 2008, the syndicates had given a profit of USD9.3 million for 2009 due to the substantial de-risking of their investment portfolios and the hardening of rates
A.M. Best Company had on January 26th, 2010 reaffirmed the Company’s financial strength rating of ‘A- (Excellent). The rating by A.M Best reflects the stable loss ratio, lower management expense ratio and well balanced portfolio with diversified geographic risk.
It is anticipated that the global economy will continue to recover, albeit at a slow pace, led by Asia and other emerging markets. 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, the Company continues to adopt a conservative and cautious underwriting approach for 2010 to ensure enhancement of the quality and stability of its business portfolio. With the financial markets continuing to be engulfed by uncertainties amidst concerns over Eurozone’s budget deficits and the timing of the global fiscal and monetary tightening, the Company will be cautious and vigilant of the market developments. Repositioning of its investment strategies will be done whenever necessary, with capital preservation remaining as the overriding investment principle. The Group has probably attained its optimum premium level under the present available capital resources. Any significant premium growth is not plausible as it will put additional strain on its capital requirement, unless the business is of good quality. Hence, this presents an opportunity for the Company to emphasise on quality rather than quantity for its underwriting strategies of the Non-Lloyd’s portfolio. Although 2009 has seen the Company returning to profitability, Management is not complacent as it is anticipated that 2010 would bring formidable challenges on all fronts. The changing global weather patterns would again feature prominently in the underwriting performance in 2010. The European sovereign credit crises may also result in the shrinkage of premium as buyers of insurance find themselves with less funds to purchase insurance cover.
The turnaround of the Group’s financial results in 2009 compared to the previous year 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 |