A.M. Best Affirms Ratings of Labuan Reinsurance (L) Ltd
Singapore, November 7, 2014 - A.M. Best has affirmed the financial 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 affirmations acknowledge Labuan Re’s adequate risk-adjusted capitalization, which remains supported by a USD 55 million subordinated debt issue. Underwriting leverage is expected to continue to decline as management anticipates lower business volumes. As the company continues remediation of its underwriting portfolio, claims ratios have continued to trend downward in the first half of 2014.
Offsetting rating factors include pressure on the company’s expense ratio as its net premium base is budgeted to decline. The company’s combined ratio is expected to remain high and overall profitability will rely significantly on investment results. Labuan Re’s growth in its profitable domestic market appears to have slowed down and become more reliant on a smaller number of cedants, partly due to market consolidation caused by mergers and acquisitions. The company’s participation in Lloyd’s involves a contingent call on Labuan Re’s capital. While this is in line with market practice, the potential size of this contingent capital call is large relative to Labuan Re’s capital size.
Upward rating movements are unlikely. Downward pressure on the ratings could occur from sustained negative earnings due to lower than expected investment results and a large call on Labuan’s capital as a result of its Lloyd’s commitments.
The methodology used in determining these interactive ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
- Catastrophe Analysis in A.M. Best Ratings
- Evaluating Country Risk
- Equity Credit for Hybrid Securities
- Risk Management and the Rating Process for Insurance Companies
- Understanding Universal BCAR
Ratings are communicated to rated entities prior to publication, and unless stated otherwise, the ratings were not amended subsequent to that communication.
This rating announcement has been issued by A.M. Best Asia-Pacific Limited, which is a subsidiary of A.M. Best Company. A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.