The operating performance of Labuan Reinsurance [L] (Labuan Re) is viewed as adequate, says AM Best.
The reinsurer’s earnings were historically driven by investment returns, arising from interest income and gains from its bond and equity investments. Labuan Re’s underwriting performance has typically been driven by catastrophe-related losses over the last five years, notes the global credit rating agency.
However, following remedial actions taken by management, the company’s underwriting performance has improved in recent years. In 2023 and the first half of 2024, Labuan Re reported robust operating performance, driven by favourable underwriting results and investment return.
Ratings affirmed
AM Best has affirmed Labuan Re’s Financial Strength Rating of ‘A-’ (Excellent) and the Long-Term Issuer Credit Rating of ‘a-’ (Excellent) of Labuan Reinsurance (L) Ltd (Labuan Re) (Malaysia). The outlook of these credit ratings is ‘Stable’.
The ratings reflect Labuan Re’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile, and appropriate enterprise risk management (ERM).
Labuan Re’s balance sheet strength assessment is underpinned by its risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which is at the strongest level at year-end 2023.
The company adopts a prudent capital management approach to support risk-adjusted capitalisation at the strongest level over the medium term, along with an appropriate regulatory solvency position.
The company’s investment portfolio is focused on cash, deposits and fixed-income securities, albeit with modest exposure to higher-risk asset classes such as equities. Partially offsetting balance sheet strength factors include Labuan Re’s exposure to natural catastrophe risks relative to the size of its capital base, which emanates from its regional reinsurance and international operations through its participation in Lloyd’s syndicates (Lloyd’s).
Business profile
AM Best assesses Labuan Re’s business profile as neutral given its position as a well-established regional non-life reinsurer. In addition, the company’s business profile continues to benefit from portfolio diversification through its participation as a corporate member in Lloyd’s. Despite reduced participation in Lloyd’s business, Labuan Re’s gross premium has exhibited moderate growth, driven by product initiatives and its positioning in the reinsurance market. AM Best views the company’s ERM approach as appropriate given the current size and complexity of its operations.