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Fitch Affirms Credit Guarantee and Investment Facility's IFS Rating of 'AAA(idn)'
July 11, 2017 / 9:33 AM / 4 months ago

Fitch Affirms Credit Guarantee and Investment Facility's IFS Rating of 'AAA(idn)'

(The following statement was released by the rating agency) JAKARTA, July 11 (Fitch) Fitch Ratings Indonesia has affirmed Credit Guarantee and Investment Facility's (CGIF) National Insurer Financial Strength (IFS) Rating at 'AAA(idn)' and National Long-Term Rating at 'AAA(idn)'. The Outlook is Stable. 'AAA(idn)' Long-Term National Ratings denote the highest ratings assigned by Fitch on its national rating scale for that country. This rating is assigned to issuers or obligations with the lowest expectation of default risk relative to all other issuers or obligations in the same country. In Fitch's view, CGIF's credit profile is stronger than Indonesia's Long-Term Local-Currency IDR of 'BBB-', which supports assignment of a 'AAA(idn)' IFS rating on the national scale. KEY RATING DRIVERS The ratings of CGIF consider its sound capitalisation, prudent investment composition, use of reinsurance to support its underwriting capacity and improving operating profitability. CGIF benefits from its operational linkage to the Asian Development Bank (ADB) and shares ADB's multilateral supranational status. CGIF continues to cautiously manage its guarantee operation by adopting, when appropriate, ADB's operational policies and risk-management framework. CGIF's capitalisation in terms of net par-to-capital leverage, as measured by the ratio of after-reinsurance notional insured par to capital, remains manageable despite ongoing expansion of its bond guarantee business. While several transactions are still in the pipeline, the company's net par-to-capital leverage amounted to 1.16x at end-2016. The company entered into a quota share reinsurance treaty in 4Q16 to underpin its underwriting capacity. Premiums are ceded to a panel of reinsurers with strong credit quality. Fitch expects CGIF to keep its after-reinsurance par-to-capital leverage below 2x as its portfolio further expands. CGIF's investment composition remains conservative as it invests in only cash and deposits, and fixed-income securities with strong credit quality. The company has no exposure to equity or property investment. Eligible fixed-income securities with maturity term of more than one year must be rated at least 'AA-' on an international scale. Fitch expects ongoing business expansion to steadily lead to an improvement in CGIF's operating profitability because the relative share of fixed costs will decline. CGIF's net profit rose by 29.6% in 2016 to USD10 million while its return on equity rose to 1.4% in 2016 from 1.1% in 2015. Offsetting these positive attributes are its relatively short operating history and business focus on a high-risk-insured portfolio. CGIF provides guarantees on local currency-denominated bonds issued by corporations in south-east Asia, which exposes it to issuers with non-investment-grade ratings and uncapped currency risks. CGIF was established in late 2010 to support the development of debt capital markets in Asia by providing financial guarantees on debt issues, primarily corporate issuers. CGIF commenced operations in 2012 and wrote its first bond guarantee in 2013. RATING SENSITIVITIES Key rating triggers that could lead to a downgrade include: - An upsurge in the net-par-to-capital leverage ratio to consistently higher than 3:1, - Losses developing in the guarantee portfolio that adversely deviate from expectations, - Increased reliance on reinsurance protection with a reduction in the ratio of net to gross notional par insured significantly below 75%, - CGIF's capital contributors failing to pre-fund business growth with capital infusions, and instead allowing the leverage ratio to (even temporarily) exceed planned benchmarks. CGIF's National IFS Rating and National Long-Term Rating are already at the highest possible level and cannot be upgraded. Contacts: 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 Siew Wai Wan Senior Director +65 6796 7217 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@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. 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. Additional information is available on www.fitchratings.com Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here National Scale Ratings Criteria (pub. 07 Mar 2017) here Additional Disclosures Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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