RPT-Fitch Affirms Malaysia's MNRB Retakaful at IFS 'BBB+'/Stable

Wed Jun 25, 2014 3:29am EDT

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June 25 (Reuters) - (The following statement was released by the rating agency)

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

KEY RATING DRIVERS

The rating takes into consideration the operational support given by the MNRB Group, given MRT's importance to the group's strategy of developing its retakaful business in the region. The rating also incorporates MRT's sound capital level commensurate with its business profile, gradual turnaround in its financial performance and its conservative investment mix.

On the other hand, MRT has the challenging task of establishing a stronger foothold and market presence in the Malaysian market, amid a competitive and evolving takaful operating environment. 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 mitigated by MNRB Group's commitment to support its operations.

Based on the unaudited information for the financial year ended 31 March 2014 (FY14), about 55% of MRT's business portfolio is made up of general retakaful business and 45% family retakaful business, sourced largely within Malaysia. To maximise operational efficiency, the company adopts the same branding as the group 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 registered a smaller net loss of MYR0.8m compared with -MYR12.9m in FY13. The improvement was mainly due to the adoption of more prudent underwriting practice during the year. The combined ratio for the general retakaful fund was estimated to improve to below 100% from about 120% for FY13.

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 is 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 sound operating performance with sustained profitability and an overall combined ratio falling below 110% for a prolonged period.

Key rating triggers for a downgrade include weakening in its strategic importance to MNRB Group, or 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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