KUALA LUMPUR (Jan 25): Fitch Ratings has upgraded Malaysian Reinsurance Bhd's (Malaysian Re) insurer financial strength rating to 'A' (strong) from 'A-' (strong) with a stable outlook, MNRB Holdings Bhd said today.

MNRB is the parent company of Malaysia Re, the country's leading reinsurance company.

According to Fitch, the rating upgrade reflects Malaysian Re's "very strong" capitalisation and "strong" financial performance.

"It also takes into account its moderate business profile, as Malaysian Re's substantive domestic franchise is balanced by its 'Least Favourable' operating scale and limited geographical diversification compared with global peers," said the ratings agency in a statement.

Fitch noted that Malaysian Re maintained a regulatory risk-based capital ratio that was well above the regulatory minimum of 130% at end-September 2018.

"Its score on Fitch's Prism Factor-Based Model (FBM) improved to 'extremely strong' in the financial year ended March 2018 (FY18) from 'very strong' in the previous year, as the company did not declare dividends in the previous two years in order to restore its capital buffers, following a series of large losses in FY16.

"Nevertheless, its capital base remains small compared with that of global peers on an absolute basis," said Fitch, adding that overall, Malaysian Re's capitalisation is expected to remain healthy, driven by surplus accretion and retrocession optimisation amid lower premium volumes.

Fitch views Malaysian Re's financial performance as "strong", noting that the company's combined ratio improved to 97% in FY18, from 103% in the previous year.

"We expect underwriting results to benefit from the company's continued rationalisation of its overseas business portfolio, and will continue to closely monitor the underwriting results of the international portfolio.

"The company reported a net profit of RM38 million in 1HFY19, and its annualised return on equity stood at 5.1%, above the average of 4.7% from FY16-FY18," said Fitch.

Fitch noted that Malaysian Re had a market share of more than 60% by reinsurance-accepted premiums in 2018 and viewed the franchise as substantive within Malaysia.

"We also recognise its limited operating scale. Its risk appetite is on a par with the sector as it underwrites all classes of business from the Malaysian market," said Fitch, adding however that Malaysian Re's business has limited diversification as the majority of its operations remain concentrated in the domestic market.