KUALA LUMPUR (May 11): Fitch Ratings has affirmed the insurer financial strength rating (IFS) of Malaysian Resinsurance Bhd (Malaysian Re), a wholly-owned subsidiary of MNRB Holdings Bhd, at ‘A’, with a stable outlook.

In a statement today, Fitch said the rating affirmation reflects Malaysian Re's solid capitalisation and steady financial fundamentals that support its market leadership in Malaysia.

“However, the rating is constrained by its smaller market size and limited geographical diversification relative to global peers, as well as potential catastrophe exposure from its foreign businesses amid intense market competition,” it said.

The stable outlook, meanwhile, reflects Fitch's expectation that Malaysian Re will improve and maintain its financial performance, driven by a prudent and experienced management's strong emphasis on bottom-line profitability.

Malaysian Re, a reinsurance unit MNRB Holdings (fundamental: 0.4; valuation: 2.55), is the largest reinsurer in Malaysia.

Fitch said it has maintained its leading market position and captured a market share of 54% in 2013 — measured by reinsurance accepted premiums — and that it expects Malaysian Re’s market dominance to continue, underpinned by a solid franchise and continued support from local cedants.

Based on management results, Malaysian Re's combined ratio deteriorated to 97% at end-2014, from 90% at Mar 31, 2014 (as at end of FY14), due to higher claims experience. This follows a few large losses reported in both the international and domestic business during the year, the reasons for which included the Peninsular Malaysia flood in December 2014.

“The company expects its claims exposure from the floods to be manageable overall, backed by sufficient retrocession layers and strong capital levels.

Malaysian Re has also tightened its underwriting discipline since, and Fitch believes its operating performance will improve over time,” added the rating agency.

Malaysian Re's regulatory risk-based capital as at end-2014 was well in excess of the regulatory minimum of 130%. Its investment mix remained prudent and liquid, with more than 80% of invested assets placed in cash, deposits and fixed-income securities, it added.

Fitch said an upgrade is “unlikely” for the company in the near term, but noted a downgrade of by more than one notch of Malaysia's 'A' Long-Term Local Currency Issuer Default Ratings (IDR), which is on negative outlook, would likely result in a rating downgrade for Malaysian Re.

“Evidence of a deterioration in Malaysian Re's financial fundamentals due to a more challenging operating environment associated with a weakening sovereign rating, could also lead Fitch to reassess the one-notch differential between the reinsurer's rating and the sovereign's Local Currency IDR,” it explained.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)