Best Affirms Malaysia’s Labuan Re ‘B++’ Rating; Upgrades ICR to ‘bbb+’

A.M. Best Co. announced that it has affirmed the financial strength rating of “B++” (Very Good) and upgraded the issuer credit rating to “bbb+” from “bbb” of Malaysia’s Labuan Reinsurance Ltd., and has revised its outlook on both ratings to positive from stable.

“The rating reflects the company’s excellent capitalization, stable underwriting performance and well balanced portfolio with diversified geographic risk,” said Best. “The strong commitment by its shareholders serves as an additional buffer to its current capitalization.”

Best explained: “Labuan Re’s shareholders have consistently supported the company by increasing the paid-up capital since its inception in 1992. The company had initial paid-up capital of $ 10 million, which was substantially increased to $ 150 million in later years. In addition, Labuan Re’s shareholders have committed an additional $ 50 million in capital should the company need to increase its capitalization.

“Labuan Re achieved a stable underwriting result over the past two years. The company recorded an underwriting profit and net income of $ 5 million and $ 14 million, respectively, in fiscal year 2003. Benefiting from the improvement in investment income, Labuan Re’s net income increased to $ 16 million, although the underwriting profit decreased to $ 3 million in fiscal year 2004.”

Best said it “believes that this income level is sustainable, although the company experiences catastrophe losses. For fiscal year 2005, Labuan Re expects slightly lower net income compared to the previous year due to losses sustained from Hurricane Katrina in the United States.”

The rating agency also noted that as of “fiscal year-end 2004, the company’s business portfolio included 29 percent in Malaysia, 45 percent in Lloyd’s and the remaining 26 percent in other overseas markets such as the Middle East and Asia. The participation in Lloyd’s increased international diversification of Labuan Re’s underwriting portfolio, and the exposure to Europe and North America in the Lloyd’s portfolio provides diversification to the company’s primarily Asian risk exposure.”

Offsetting factors, cited by best, include: “catastrophe exposure in overseas markets and expected decrease in risk-based capitalization due to continued premium growth.”

Best added that as “Labuan Re intends to further increase premium volume, risk-based capitalization will face downward pressure. A.M. Best will closely monitor the premium growth and capitalization going forward.”