Fitch affirms Tugu Pratama Indonesia at IFS 'AA-(idn)'/stable
Thursday, September 20 2012 - 06:11 AM WIB
The rating reflects Tugu Pratama's position as one of Indonesia's five largest general insurers, with strong support from its 65% majority shareholder, PT Pertamina ('BBB-'/Stable), a state-owned oil and gas company. It also highlights the insurer's robust capitalisation relative to its operating portfolio and conservative investment mix.
The rating also takes into account Tugu Pertama's volatile underwriting portfolio, given its exposure to the oil and energy sector, and its reliance on reinsurance.
The Stable Outlook reflects Fitch's expectation that Tugu Pertama will maintain its sound financial fundamentals due to continuous prudent reinsurance management. The latter is backed by a solid panel of reinsurers and by the company's focus on diversifying their business towards more non corporate and non-energy businesses.
Tugu Pratama has remained consistently profitable over the last five years. It is backed by solid capitalisation with a risk-based capital (RBC) ratio above 300% as of end-Q212, in excess of the 120% regulatory minimum. Its investment portfolio, which mainly consists of cash and fixed income securities, is conservative. It has limited investment in stocks, which represented about 1% of invested assets as of July 2012.
Tugu Pratama's underwriting performance has been affected by its erratic loss experience and high expense ratios. The company's combined ratio improved to 110.78% in 2011 from 137.04% in 2010, driven by a benign operating environment and increased insurance pricing. In 2009, its combined ratio was 87.4%. Further, its reliance on reinsurance makes it sensitive to changes in reinsurance pricing and policy availability.
Fitch may consider a single-notch upgrade if Tugu Pertama successfully manages its operating expenses and risk diversification which translates into a more stable underwriting performance with a combined ratio consistently lower than 100%.
Conversely, Tugu Pertama's rating may face downward pressure from a significant deterioration in its capital with its RBC consistently falling below 250% that adversely affects its operating profile or its ability to support underwriting risks. Weakening risk management and a sharp rise in after-reinsurance underwriting risks relative to equity are also negative rating triggers. (ends)