MARC ‎has withdrawn its A+ insurer financial strength (IFS) rating on BEST RE Family (L) Limited (BEST RE Family) at the family retakaful operator's request. MARC has not been able to update the rating prior to withdrawing it as the rating agency is unable to reassess the two notch ultimate parent support uplift currently embedded in BEST RE Family's IFS rating.‎ This is because MARC has not been able to update its public information rating on Islamic Arab Insurance Co (IAIC or Salama), the ultimate holding company of BEST RE Family, due to ongoing uncertainties around the business and financial risk profile of core subsidiary BEST RE. Historically a major contributor to Salama Group's overall business and earnings, the general reinsurer had earlier shared with MARC its plans to decrease its insured exposures to improve its risk-adjusted capital position which was weakened by heavy insured losses from the 2011 Thai floods. (MARC withdrew its IFS rating on BEST RE on September 9, 2013 at the request of the general reinsurer.)

Salama Group was negatively impacted by technical losses from core subsidiary BEST RE during the year 2012. It recorded an underwriting loss of AED264 million as compared to an underwriting profit of AED222 million the year earlier and a net loss of AED382 million. This resulted in some erosion of shareholders' equity to AED1,201 million as of end-2012 from AED1,579 million, a year earlier.

For the first six months ended June 30, 2013, Salama Group posted a reduced unaudited underwriting profit of AED75 million (1H2012: AED105 million) on the back of lower gross written contributions. Its family takaful business, meanwhile, saw a 7% decline in net underwriting income to AED16 million compared to the corresponding period of the preceding financial year despite an increase in gross written contributions to AED102 million (1H2012: AED 99 million). The cutback in gross written contributions at consolidated level appears to have created a drag on earnings momentum and internal capital generation for the group. Nonetheless, MARC believes that the downside risk to BEST RE Family's own standalone credit profile is limited on account ‎of its fairly stable earnings profile afforded by proportional retakaful treaties for term assurance, liquid investment portfolio and adequate capitalisation relative to its moderate business risk profile. MARC expects the low level of retakaful penetration in BEST RE Family's target markets of Far East Asia and North Africa to underpin growth in its gross written contributions.

Upon withdrawal ‎of BEST RE Family's IFS rating, MARC will no longer provide analytical coverage on BEST RE Family.

Contacts:
Sharidan Salleh, +603-2082 2254/ sharidan@marc.com.my;
Oo Chin Kai, +603-2082 2260/ chinkai@marc.com.my.