Ratings Roundup: Instituto Nacional, Malaysian Re

January 26, 2012

A.M. Best Co. has assigned a financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” to Costa Rica’s Instituto Nacional de Seguros (INS), both with stable outlooks. The ratings reflect “INS’ strong capitalization and liquidity position, diversified operating strategy, its position as the main insurer in Costa Rica and favorable operating profitability,” said Best. The ratings also consider the “explicit support INS receives from the government of Costa Rica, its parent. Also inuring to the ratings is INS’ sound reinsurance program with highly rated international reinsurers.” As partial offsetting factors Best cited “INS’ relatively high loss and underwriting expense ratios compared to other insurers in the region. Additionally, INS’ investment portfolio is heavily concentrated in government and bank issued securities. Nonetheless, the portfolio is composed of high credit quality securities and generates significant income for INS.” Best said the stable outlook is “based on the expectation of sustained strong capitalization and operating performance. INS underwrites life insurance lines, health insurance, automobile, property/casualty, surety bonds and compulsory insurance, which include compulsory workers’ compensation, auto compulsory insurance and comprehensive crop insurance for the local market. Property/casualty lines account for most of the written premiums. The company is authorized to write 160 products by the Superintendencia General de Seguros (SUGESE) as of year-end 2010. Rating drivers that could lead to a positive outlook or an upgrading of the ratings are: improvement in INS’ underwriting performance, reduced overall net exposure and diversification of its investments. Rating drivers that could lead to a negative outlook or a downgrading of INS’ ratings are: a material loss of capital from either claims or investments, a reduced level of capital that does not support the ratings or an increase in net retention.”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Malaysian Reinsurance Berhad (Malaysian Re), a wholly owned and key subsidiary of MNRB Holdings Berhad, both with stable outlooks. The ratings reflect Malaysian Re’s “adequate capitalization, improving trend in underwriting performance and consistent positive investment income attributed to a prudent approach,” Best explained. The ratings also acknowledge Malaysian Re’s “leading market position in Malaysia, its key country of exposure. Malaysian Re’s risk-based capitalization has slightly strengthened for fiscal year (FY) 2010 ended March 31, 2011, attributable to more favorable overall income stemming from an improvement of both the underwriting and investment performance, and greater retention of earnings.” Best added that it “expects Malaysian Re’s capital position will be maintained at a similar level in the near future due to the composition of the company’s underwriting portfolio, investment strategy and quarterly monitoring of the local risk-based capitalization. Due to its national reinsurer background, almost three quarters of Malaysian Re’s business is derived from the Malaysian market. The company’s underwriting margin had been in an increasing trend over the past three years, primarily reflecting the better quality of its Malaysian portfolio, while the loss ratios of its overseas portfolio had remained volatile.” Best also indicated that it “anticipates that losses arising from the Thai flooding will have minimal impact on the company’s underwriting performance and on its risk-based capitalization for FY 2011 due to management’s focus on the bottom line and strengthening the capital base.” As partial offsetting factors Best cited the “keen competition in overseas markets, potential discontinuation of the voluntary cession and the impact in the long run on the company’s profitability. Given the market competition in Asia Pacific, more capital is required to support Malaysian Re’s growth and expansion to overseas markets. In addition, if the actual premium growth is higher than projected, the stability of the ratings could be jeopardized if the company’s current level of risk-adjusted capitalization cannot be maintained.”

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