Malaysia's BEST RE gets negative outlook from AM Best

Parent company fails to make cash injection as capital levels deteriorate

AM Best Europe has revised the outlook to negative from stable and affirmed the financial strength rating of A- (Excellent) and issuer credit rating of “a-” of BEST RE (Malaysia).
The negative outlook has been assigned as a result of deterioration in risk-adjusted capitalisation. The rating agency is also concerned about the level of support provided to BEST RE from its parent company, Islamic Arab Insurance Company (Salama) (UAE).
During 2011, faster than anticipated growth in premium income significantly increased BEST RE’s capital requirements. At the same time, growth in available capital has been below expectations.
BEST RE’s gross written premiums increased by 21% from $368m to $444.8m, while its capital base grew by less than 1% from $145.8m to $146.3m.
Despite losses incurred as a result of the floods in Thailand during 2011, BEST RE maintained a net profit for the financial year of $0.4m.
Furthermore, the ratings of BEST RE were affirmed by AM Best as recently as December 2011, and factored into the affirmations was an expected capital injection of $50m from Salama during the first three months of 2012. This capital injection did not materialise as was anticipated.
However, a reduction in business volume over the medium term combined with sound underwriting results may alleviate concerns regarding BEST RE’s capital position.