Labuan Re’s operating profit will be supported by underwriting and higher reinsurance pricing – AM Best

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Corrective actions taken by management over the past few years have supported gradual improvements in the Company’s underwriting performance.

While AM ​​Best expects the ongoing pandemic to result in lower investment returns in the short to medium term, operating profit is expected to be supported by the continued improvement in underwriting performance, aided by a strengthening reinsurance prices / conditions and the continued implementation of a corrective action program.

Notes and outlook

AM Best revised Labuan Re’s outlook to “Stable” from “Negative” and confirmed the reinsurer’s financial strength rating of A- (excellent) and the issuer’s long-term credit rating of “a-” (excellent).

Credit ratings reflect the strength of Labuan Re’s balance sheet, which AM Best considers very strong, as well as its adequate operational performance, neutral business profile and appropriate enterprise risk management (ERM).

The revised outlook to “Stable” reflects AM Best’s expectations that Labuan Re’s rating fundamentals will remain in line with their current valuations in the short to medium term.

The assessment of Labuan Re’s balance sheet strength is supported by its risk-adjusted capitalization which is expected to remain at the highest level over the medium term, as measured by Best’s capital adequacy ratio.

Risk

AM Best considers the company to have a moderate risk investment strategy, holding a mix of low risk assets, including cash, deposits and fixed income instruments, albeit with significant exposure to long term assets. higher risk of unrated fixed income instruments, equities and real estate.

Balance sheet factors partially offsetting Labuan Re’s modest absolute capital base and limited internal capital generation in recent years. In AM Best’s view, the company remains exposed to natural catastrophe risk from its regional reinsurance operations, although Labuan Re has actively sought to reduce its exposure to peak risks in recent years.

Company Profile

AM Best considers Labuan Re’s business profile to be neutral given its position as a well-established regional non-life reinsurer. In addition, the business profile of the company continues to benefit from the diversification of the portfolio resulting from its participation as a corporate member in the syndicates of Lloyd’s of London.

In the medium term, AM Best expects the company to show a downward trend in gross written premiums as it continues to reduce its stake in Lloyd’s of London. AM Best considers the company’s ERM approach to be appropriate given the current size and complexity of its operations.


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