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FITCH REVISES LABUAN REINSURANCE'S OUTLOOK TO NEGATIVE
Fitch Ratings-Singapore-18 January 2012: Fitch Ratings has revised Malaysia-based Labuan
Reinsurance (L) Ltd's (Labuan Re) Outlook to Negative from Stable. Its Insurer Financial Strength
(IFS) rating has been affirmed at 'A-'.
The revision in Outlook reflects the adverse impact on the company's financial performance and
capital level from several unprecedented catastrophes in Asia during 2011.
Labuan Re incurred a net loss of USD4.5m for 9M11, against a net profit of USD13.7m for FY10.
The combined ratio for the full year of 2011 is expected by management to be about 121% (FY10:
99.2%), driven by adverse claims experience arising from the various catastrophes in Asia,
including the Thailand floods, tsunami in Japan and earthquake at Christchurch, New Zealand.
On the other hand, the ratings reflect the reinsurer's diverse geographical spread with limited
business concentration risks, highly liquid investment mix, as well as sound capital quality. Labuan
Re currently does not have any debt leverage constraining operational and financial flexibility.
The company has always sought to maintain robust capital buffer to support its business growth and
combat any shocks. Its regulatory solvency ratio would likely fall below 300% in end-2011, from
396% in end-2010 but still above the regulatory minimum of 100%. Management is currently
contemplating several options to raise capital by H112, including issuing subordinated debt and/or
calling up the committed capital resource of USD50m from existing shareholders.
The ratings may be downgraded if there is significant deterioration in Labuan Re's operating
performance, with the combined ratio consistently above 110%. A weakening of capitalisation
relative to its business profile, with further adverse development of its claims experience from the
Thai floods and/or the regulatory solvency margin ratio falling below 250% for an extended period
could also lead to a one-notch downgrade. Conversely, the outlook may be revised to Stable from Negative if Labuan Re is able to demonstrate sustained improvement in its underwriting
performance as well as its capitalisation to better absorb shocks.
Established in 1992, Labuan Re is licensed under the Offshore Insurance Act, 1990 and incorporated in the International Business And Financial Centre of Labuan, which is an island off the coast of Sabah in East Malaysia. The company writes predominantly general reinsurance business.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site,
http://www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all
times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other
relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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