Labuan Re outlook changed to ‘negative’ by AM Best
AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Labuan Reinsurance.
The revision of the outlooks to negative reflects AM Best’s concern over the company’s ability to maintain its adequate operating performance, amidst challenging market conditions, as it faces execution risk in remediating its underwriting portfolio.
Labuan Re’s Lloyd’s business, which generates about half of Labuan Re’s premiums, has been impacted by large claims events in 2017 and 2018, AM Best noted. The company’s domestic business also was impacted by several large fire losses, the agency added. While the full extent of the 2018 losses is not yet known, AM Best expects the company’s combined ratio to remain elevated. In response, the company has decided to review its participation in several of the Lloyd’s syndicates and also will re-examine the composition of its non-Lloyd’s portfolio. However, execution risk will be present as the company adjusts its portfolio, AM Best noted.
Nonetheless, Labuan Re’s risk-adjusted capitalization remains solid, the agency said. The company’s underwriting and investment portfolio are geographically diversified, and the company also refinanced a $55 million subordinated bond issue that supports its balance sheet, it noted. In addition, Labuan Re has purchased earlier in the year a stop-loss cover for its Lloyd’s portfolio that will likely reduce losses from the above-mentioned events. The company also is exploring opportunities to introduce new products into Malaysia with foreign partners, AM Best said.
An offsetting rating factor is Labuan Re’s limited control over the risks in its Lloyd’s portfolio and the length of time needed to obtain reported results, AM Best noted. Additionally, the limited scale of Labuan Re in the highly competitive reinsurance market also constrains its ability to select risks and could affect its remediation efforts, the agency added.
Labuan Re holds a Financial Strength Rating of A- (Excellent) and a Long-Term Issuer Credit Rating of “a-”.
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