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Fitch Rates Indonesia Re at IFS 'AA(idn)'; Outlook Stable
April 11, 2017 / 2:31 AM / in 6 months

Fitch Rates Indonesia Re at IFS 'AA(idn)'; Outlook Stable

(The following statement was released by the rating agency) JAKARTA, April 10 (Fitch) PT Fitch Ratings Indonesia has assigned Indonesia-based PT Reasuransi Indonesia Utama's (Indonesia Re) National Insurer Financial Strength (IFS) Rating at 'AA(idn)' with Stable Outlook. '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 Indonesia Re's ratings reflect strong ties with the Indonesian government (BBB-/Positive), as it is fully state owned. Indonesia Re was merged with PT Reasuransi Internasional Indonesia in 2015 and had a solid domestic market profile as the largest domestic reinsurer by total asset size in 2016. It captured an overall domestic market share of 38% by gross reinsurance premiums in 2015. However, its overall market scale is small compared with regional reinsurance peers, as the majority of reinsurance premiums in Indonesia are ceded to offshore reinsurers. The reinsurer has strong capital buffers to support ongoing business growth and benefits from regulatory support, which requires Indonesian insurers to obtain automatic reinsurance and optimise local reinsurance capacity. Nevertheless, the rating also factors in the reinsurer's investment profile and high business concentration risk in the catastrophe-prone Indonesian market. Indonesia Re's capitalisation, measured by the regulatory risk-based capital (RBC) ratio, was 315% at end-2016 (2015: 1,065%); exceeding the minimum 120% regulatory requirement and commensurate with its rating profile. The decrease in the company's RBC was caused by its expanding business. Fitch will continue to monitor the sustainability of the company's capitalisation to support ongoing business growth in view of regulatory changes to encourage greater optimisation of domestic reinsurance capacity. The company adopts a liquid and prudent investment mix, with more than 70% of its invested assets placed in cash and equivalents and fixed-income securities at end-2016. Indonesia Re's exposure to risky assets, such as stocks and below-investment-grade bonds, is minimal relative to its capitalisation. Indonesia Re's underwriting performance is healthy, with its combined ratio (aggregate of non-life loss ratio and expense ratio) has remained below 100% over the last two years. This is underpinned by its selective underwriting practices, steady premium growth and manageable claims. Stable investment returns have also contributed favourably to bottom-line profitability. RATING SENSITIVITIES Upgrade rating triggers include a sustainable improvement in capitalisation, with the RBC ratio consistently above 325%, consolidated financial leverage below 40% and an improved market position while maintaining profitability, with a combined ratio consistently below 90%. Downgrade rating triggers include a significant deterioration in the company's credit profile in terms of market franchise, operating performance or capitalisation relative to its business profile, with a combined ratio persistently above 105% or RBC ratio below 200%. Weakening of the company's importance to the state could also lead to a downgrade. 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 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. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(idn)' for National ratings in Indonesia. Specific letter grades are not therefore internationally comparable. Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. 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