Fitch affirms Malaysia's MNRB Retakaful at IFS 'BBB+'/stable

Reuters

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Sept 30 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed Malaysia-based MNRB Retakaful Berhad's (MRT) Insurer FinancialStrength rating at 'BBB+' with Stable Outlook.

KEY RATING DRIVERS

The rating incorporates continued operational support from the MNRB Group, given the insurer's importance to the group's strategy of developing its retakaful business in the region. The rating also reflects the insurer's sound capital level commensurate with its business profile, and its prudent investment strategy.

MRT, however, faces a competitive and evolving takaful operating environment as it attempts to establish a stronger presence in the market and gradually expand to a sustainable scale. The company also faces the challenge of controlling its expenses effectively as it builds up its business portfolio.

The Stable Outlook reflects Fitch's view that potential execution risks associated with MRT's business plan are somewhat mitigated by MNRB Group's commitment to support its operations. The agency also expects the company to demonstrate progressive improvement in its financial results based on prudent management of its portfolio expansion.

Currently, about 60% of MRT's business portfolio is made up of general retakaful business and 40% family retakaful business, sourced largely within Malaysia. To optimise operational efficiency, the company capitalises on the parent's branding and draws on shared resources within the group to support its non-core functions, including information technology, finance, human resources and administration.

On a standalone basis, MRT suffered a setback in its financial performance for the financial year ended 31 March 2013 (FY13) based on unaudited information. This was due mainly to additional reserve provisioning calculated at a higher confidence level of 75%, from 50% previously, as well as poor performance on certain products. The insurer suffered a net aggregate loss of MYR12.9 m for FY13, compared with a net aggregate profit of MYR5.4m for FY12. The combined ratio for the general retakaful fund worsened to about 120% from below 110% for FY12.

RATING SENSITIVITIES

Key rating triggers for an upgrade of MRT's rating include an increase in its strategic importance to MNRB Group. Any upgrade based on its standalone credit profile is unlikely in the near to medium term, although it is possible in the longer term if there are sustained significant improvement in its standalone fundamentals. The latter are assessed in terms of market franchise, business growth, capital levels relative to its business profile and operating performance, for example, with the overall combined ratio falling below 110% for a prolonged period (FY13: 120%).

Key rating triggers for a downgrade include a weakening in its strategic importance to MNRB Group, or a deterioration in MRT's standalone credit profile, such as poor operating performance with net losses in the takaful funds for an extended period, and weaker-than-expected business growth/franchise performance. The rating could also come under pressure from deterioration in the credit profile of Malaysian Reinsurance Berhad (IFS 'A'/Stable), the core operating entity of MNRB Group, which could affect the group's ability to support MRT.

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