March 17, 2017 / 6:57 AM / 6 months ago

Fitch Affirms Adira Insurance at IFS 'AA(idn)'; Outlook Stable

(The following statement was released by the rating agency) JAKARTA, March 17 (Fitch) Fitch Ratings Indonesia has affirmed Indonesia-based PT Asuransi Adira Dinamika's (Adira Insurance) National Insurer Financial Strength (IFS) Rating at 'AA(idn)'. The Outlook is Stable. '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. KEY RATING DRIVERS The rating affirmation reflects the company's market presence in the Indonesian non-life insurance industry, especially as one of the leading motor insurers. The rating also takes into account an ability to maintain a sufficient capital buffer driven by a healthy underwriting performance, and a conservative and liquid investment portfolio. These factors are partly offset by continued business concentration in motor-vehicle insurance and in catastrophe-prone Indonesia. Adira Insurance remained one of the 10 biggest non-life insurance companies in Indonesia by gross written premiums (GWP) in 2016. It has kept its market share at around 4% of total GWP in the past five years and has successfully expanded its non-motor insurance businesses to diversify its business portfolio risk and boost its market presence. The risk-based capital (RBC) ratio had risen to 309% by end-2016 from 242% at end-2015, above the regulatory requirement of 120%. The company has no plans to issue debt in the medium term. Fitch expects capitalisation to be supported by surplus growth, which will be driven by a healthy operating performance. Fitch views Adira Insurance's investment portfolio as conservative and highly liquid, with more than 80% held in cash and deposits and fixed-income instruments. Its exposure to risky assets is kept to a manageable level relative to its equity. Fitch does not expect any major changes in the well-defined investment guideline where Adira limits its holding of riskier assets such as stocks to a minimum level. The company was profitable at the operating level in 2016 because positive underwriting results and steady investment returns overcame negative growth in GWP that stemmed from a slowdown in Indonesian motor-vehicle sales. The combined ratio (sum of loss ratio and expense ratio of the non-life business) has been below 95% over the last five years, although it had risen to 90.4% by end-2016 from 86.6% at end-2015 due to a higher claim and operational expenses. The company uses reinsurance protection in the form of proportional and excess of loss treaties to mitigate its business exposure to catastrophe risk. Fitch expects Adira Insurance to continuously manage its expenses and its selective underwriting practices to maintain its healthy underwriting margin. The Stable Outlook reflects Fitch's expectation that Adira Insurance will continue to maintain an ample capital buffer as well as its prudent underwriting approach and reinsurance management to support its business operations. RATING SENSITIVITIES Upgrade rating triggers would include the company's ability to strengthen its market franchise and further diversify into non-motor businesses on a sustained basis. This would translate into a better business mix, while maintaining healthy operating profitability and sustainable RBC ratio well in excess of 280%. Downgrade rating triggers would include deterioration in the underwriting margin (with a combined ratio consistently higher than 100%) and a sharp decline in the local statutory risk-based capitalisation ratio to consistently below 200%. Contact: Primary Analyst Ghaida Gunarti Analyst +62 21 2988 6814 PT Fitch Ratings Indonesia DBS Bank Tower 24th Floor Suite 2403 Jl. Prof. Dr. Satrio Kav 3-5 Jakarta, Indonesia 12940 Committee Chairperson Jeffrey Liew Senior Director +852 2263 9939 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. 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