Fitch Affirms Tugu Pratama Indonesia at IFS 'AA(idn)'
Wednesday, January 18 2017 - 02:54 PM WIB
'AA' National IFS Ratings denote a very strong capacity to meet policyholder obligations relative to all other obligations or issuers in the same country, across all industries and obligation types. The risk of ceased or interrupted payments differs only slightly from the country's highest rated obligations or issuers.
The company's rating reflects its strong market presence in Indonesia's non-life insurance market and capital support, if needed, from its 65% shareholder, PT Pertamina (Persero) (BBB-/Positive), a major state-owned oil and gas company. It also takes into consideration the company's manageable investment risks and sound capital buffer. The rating is constrained by uncertainty over Tugu Pratama's premium sustainability and its business portfolio concentration in large corporate and oil and energy insurance risks.
Tugu Pratama is one of Indonesia's five largest non-life insurers, capturing around 5.8% market share by total industry gross written premiums as at end-2015. The company maintains a liquid investment portfolio, with around half of its invested funds in cash and deposits and fixed-income instruments at end-September 2016. Fitch considers its exposure to risky assets as manageable relative to its adjusted equity.
The company's operating performance has been robust in the past three years, with the combined ratio below 100%. However, the combined ratio increased to above 100% at end-September 2016 due to claim hikes and lower premium income from weaker oil prices and fewer infrastructure projects by Pertamina.
Tugu Pratama has maintained a sound capital buffer to support its underwriting businesses, as indicated by its risk-based capitalisation ratio of 310% at end-November 2016. The ratio remains much higher than the regulatory 120% minimum, despite a slight decrease from 374% at end-2015. Fitch sees this ratio as commensurate with the company's rating profile.
The Stable Outlook reflects Fitch's expectation that Tugu Pratama will maintain a sufficient capital buffer relative to its operating portfolio and prudent reinsurance management to protect itself from potential catastrophe losses.
Key rating triggers for an upgrade include the company's ability to maintain its favourable underwriting margin, as seen in a combined ratio consistently below 90%, and successful diversification away from the energy business while maintaining a solid capital position and improving premium sustainability management.
Key rating triggers for a downgrade include a significant and sustained drop in Tugu Pratama's capital, as seen in a risk-based capitalisation ratio consistently below 300%, which adversely affects its operating profile or ability to support underwriting risks. A decline in profitability, with return-on-equity consistently below 3%, weakening risk management or a sharp rise in Tugu Pratama's after-reinsurance underwriting risks relative to equity would also be negative for its ratings. (ends)