The lower of financial strength rating counts….

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.

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11 comments for “The lower of financial strength rating counts….

  1. REINSURERS
    August 28, 2009 at 21:15

    WILL BE BAD FOR MALAYSIA BUT GOOD FOR SINGAPORE. BEST RE IS BY FAR THE MOST COMMITTED COMPANY IN LABUAN. EMPLOYING A LARGE NO OF MALAYSIAN, BUYING PROPERTY FOR THEIR OWN USE. HOPE THE GOVERNMENT CAN BE MORE BUSINESS FRIENDLY.

    AS ALWAYS BEST WISHES TO BEST RE. U R MOST WELCOME TO SINGAPORE.

    SINGAPORE IS SO CONVENIENT U CAN OPERATE IN LOW COST AREAS OUTSOURCE WORK TO MALAYSIA-JOHOR BARU

    • August 30, 2009 at 00:42

      Yes, you may be correct to a certain extent BUT Malaysia is still much cheaper to set up office and operate – office space, salary, utilities, food & drinks, hotels, travelling including airfares are so much cheaper than operating from Singapore. Moreover quality staff are so easily available….despite Singapore insurance industry took quite a number over the last three years. Well, we expect some “neighbourly” competition to keep business thrust forward! BUt I agreed governmental attitude must change for the better and be consistent…..

      • December 22, 2009 at 09:50

        I notice Trust International, the Bahrain based reinsurer is also affected!

  2. admin
    August 11, 2009 at 14:54

    Yep, this should be a closed chapter. At the end of the day decision should not sway from those established RBC framework otherwise doing business can become very difficult. It is not just Best Re that is affected, there are others as well! But Best Re have contributed significantly to the local capacity in this country as well as the development of Labuan offshore capacity, therefore as far as they can comply with whatever the regulatory requires, they should not be put into any awark position of nature….

    • Anonymous
      April 11, 2011 at 08:35

      I think this lower of the rating application is not being applied, instead most if not all submissions for RBC are on the better rating basis. I think this should be the way and the RBC framework should be amended accordingly.

  3. Anonymous
    August 10, 2009 at 21:40

    Yes..the above is not official and only a rumour.

    The above topic is closed for the time being…

  4. Anonymous
    July 13, 2009 at 00:01

    This was something new and unheard off. Anyway, first and foremost, why one reinsurer opt for security rating from more than one rating agencies for instance AM Best, S & P, Moodies, Fitch etc ? S & P already deemed to be a much more well accepted and fully recognised internationally by the insurance and reinsurance fraternaty. In addition, different ratings hold a different view and criterias in assessing insurers/reinsurers. It is no such rating which is deemed to be the most accurate but rather more commonly accepted by various quarters.

    • July 13, 2009 at 01:43

      It is not official at least from the industry perspective but most affected companies already knew about it through Labuan IBFC, thus they are actually appealing. I thought this was unfair as the RBC framework did not provide for such rating discrimination…..
      Concerning matters iro why these professional reinsurers go for more than one rating; it is simply to do with expanding their markets to numerous regions, ie. Europe and Japanese markets place more emphasis on S&P and Fitch. They do not put great emphasis on A; a BBB+ is good enough. So if the reinsurers only have an AM Best rating then it is difficult for them to do biz in those areas. However, it is an opened fact that AM Best’s rating is always better for the reinsurers simply because they reduce weightage on country rating unlike S&P computation. This means for reinsurers with HQ domiciled in MIddle Eastern region, it is easier for them to secure an AM Best of A rate compared to getting one from S&P. Insurers domicile in SOuth east Asian countries always request for an A rating irregardless AM Best, S&P or Fitch.

  5. Anonymous
    June 5, 2009 at 14:18

    I hope this piece of news is not true and that our friend Best Re is appealing for this sudden and unfair treatment. It is certainly unfair not to compare like for like and most unfair or rather treating AM Best rating as second class on one hand but adopting it for those with only AM Best rating???

    • March 6, 2010 at 02:09

      Looks like the Bank is now silent in regards to this issue. Supposed closed for the timebeing! Hopefully.

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