Malaysian Reinsurance's underwriting performance improved sharply in the financial year ended 31 March 2024 (FY2024), with an insurance/takaful service result of MYR341m [$77m] (FY2023: loss of MYR2m), driven by lower catastrophe losses, says Fitch Ratings.
The reinsurer has also benefitted from tighter underwriting practices and favourable pricing conditions in recent years. Net profit rose to MYR388m in FYE2024, from MYR57m in FY2023, as higher investment income was weighed down by a weaker insurance/takaful financial result.
The reinsurer's underwriting profitability is supported by the profitable domestic voluntary cession business. It remains focused on managing the potential volatility of its domestic non-voluntary cession and overseas businesses, and Fitch believes this will be key to maintaining stability in its overall underwriting performance.
Rating affirmed
Fitch has affirmed Malaysian Re’s Insurer Financial Strength (IFS) Rating at 'A' (Strong) with a ‘Stable’ outlook.
The affirmation reflects Malaysian Re's 'Moderate' company profile and 'Very Strong' capitalisation. It also takes into consideration challenges in managing potential volatility in underwriting performance as well as earnings dependence on local voluntary cessions.
Aside from underwriting performance, other major drivers of Malaysian Re’s ratings include:
'Moderate' Company Profile: Fitch’s assessment of Malaysian Re's company profile is based on a 'Moderate' business profile and 'Neutral' corporate governance compared with that of all other Malaysian insurers. The reinsurer has an established and substantive domestic business franchise, which is balanced by its 'Least Favourable' operating scale relative to international peers. It holds a dominant position in Malaysia's non-life reinsurance market and has also been diversifying to overseas markets.
Cession Arrangement up for Renewal: All local general insurers currently cede 2.5% of their business to Malaysian Re. This arrangement is reviewed regularly by the regulator, Bank Negara Malaysia, and is in place until end-2024. Potential changes to the arrangement could affect Malaysian Re's business profile and profitability. Nonetheless, it manages this risk by building strong ties with domestic players and diversifying its business geographically, reducing dependence on local business for growth.
Overseas business contributed 60% of gross written premiums in FY2024, up from 52% in FY2023.
Steady Capital Metrics: Malaysian Re's Fitch Prism Model score remained 'Extremely Strong' at FYE2024, similar to its score in previous years. Its regulatory risk-based capital (RBC) ratio remained well above the 130% regulatory minimum, supported by a MYR200m Tier 2 debt issuance in October 2022. Nevertheless, the scale of Malaysian Re's absolute capital base remains small relative to global reinsurers despite the strong risk-adjusted metrics. The Fitch-calculated financial leverage ratio remained low at 9% in FY2024.
Manageable Investment Risks: Fitch regards Malaysian Re's investment mix as very liquid, as more than 80% of the reinsurer’s invested assets were in cash, deposits and fixed-income instruments at FYE2024. Its risky-asset ratio was low at 18% at FYE2024 (FYE2023: 18%).