We have just received some speculative notes from some sources concerning Bank Negara Malaysia (BNM) latest decision on Lofsa registered reinsurers. Where reinsurers are rated by more than one rating agency, the risk charge (RBC framework) would be based on the lowest available rating. For example, BEST Re has rating from both S&P and AM Best with rating of BBB+ and A- respectively, BEST Re would be deemd a BBB+ rated reinsurer and as such is no longer enjoyed an “A” rated security status.
The whole industry is now caught off guard with this new decision, and of course, the credit risk charge would goes up from 1.6% to a whooping 6%. Perhaps this comes as a shocker for professional reinsurers registered with Lofsa having more than a set of rating. I do not know how this would affect Best Re. It is like another day of bad decision done with much bad taste and truly swaying with the wind against the Risk-based capital framework.