A.M. Best Affirms Ratings of Labuan Reinsurance (L) Ltd.
FOR IMMEDIATE RELEASE
OLDWICK, NEW JERSEY, U.S.A., Jan. 26, 2010
A.M. Best Co. has affirmed thefinancial strength rating of A- (Excellent) and the issuer credit rating of “a-” of Labuan Reinsurance (L) Ltd. (Labuan Re) (Malaysia). The outlook for both ratings is stable.
The ratings reflect Labuan Re’s stable loss ratio, lower management expense ratio and well balanced portfolio with diversified geographic risk.
Although Labuan Re was hit by several catastrophe claims, the company reported a loss ratio of 64.7% in 2008. Prior to 2008, Labuan Re maintained a stable loss ratio in the range of 61.1% - 65.1% over the past five years, demonstrating its ability to generate profitable underwriting business as well as highlighting the improvement in its underwriting techniques.
Labuan Re slightly increased its management expense to USD 13.5 million in 2008 from USD 13.0 million in 2007. As the net premium written also had increased, the management expense ratio (management expense/net premium written) decreased by 1 percentage point to 7.0% in 2008.
Labuan Re had a sound spread of business composition, with 22% of gross premiums written generated from Malaysia, 43% from Lloyd’s and 35% from other overseas markets in the Middle East and Asia. The participation in Lloyd’s increased the international diversification of the company’s underwriting portfolio. The European and North American risk exposure in theLloyd’s portfolio offers instant diversification to Labuan Re’s primarily Asian risk exposure.
Offsetting factors include higher underwriting risk and intense competition in the Asian reinsurance market
A.M. Best believes that Labuan Re’s current risk-adjusted capitalization is adequate to support its ratings. However, due to increases in premiums written and further participation in new Lloyd’s syndicates, the risk-adjusted capitalization, as demonstrated by Best’s Capital Adequacy Ratio (BCAR), has shown a downward trend over the past three years. A.M. Best believes that there will be pressure on Labuan Re’s ratings if the risk-adjusted capitalization further deteriorates. Labuan Re’s net premiums written increased by 20.9% in 2007 and 18.3% in 2008, respectively, and its exposure to the Lloyd’s market increased to USD 69.9 million as at year-end 2008 from USD 39 million at year-end 2006.
For Best’s Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.
The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology
Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.
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