(The following statement was released by the rating agency)
Jan 15 - Fitch Ratings has affirmed the Insurer Financial Strength National (IFS) Reinsurance Indonesia PT Tugu (Tugu Re) at ‘A (idn)’ with a Stable Outlook.
The ratings reflect the growth of a stable Re monument business, strong operating profitability and a relatively conservative investment composition of the competitors. The level of capital and lack of geographic diversification remains a major obstacle rating companies.
Re monument has posted annualized growth in gross premium of approximately 10.2% in the first half of 2012 according to management reports. Return on average equity and pre-tax return on assets in the same period respectively showed a slight increase to 23.6% and 8.8% of 20% and 6.5% at the end of 2011 due to stable investment returns, expense ratios the lower and the absence of major natural disasters in Indonesia.
Fitch believes growth will continue because the monument Re steady premium growth in the Indonesian insurance market with low penetration rates and government regulation that requires insurance companies in the market directly to obtain automatic reinsurance support from local reinsurance company.
With more than 90% of assets consisting of fixed income instruments and deposits, investment composition monument Re relatively conservative. Fitch’s positive view of the company’s equity portfolio decreased to 4.2% at end June 2012 from 13.2% at the end of 2011. While the investment strategy monument Re is currently regarded as conservative, Fitch will remain vigilant material change in the investment strategy that leads to an increase in the exposure of significant equity.
Compared to its regional peers reinsurance, level of geographic diversification Re monument limited to about 96% of gross premiums sourced from the Indonesian market is prone to natural disasters. Re monument ratings are also constrained by the relatively weak capitalization for underwriting risk and operational profiles. Level of regulatory risk-based ratio of capitalization (RBC) Re monument at the end of November 2012 was 135%, compared with the regulatory minimum of 120%.
The main drivers for the increase include increased profitability ratings monument Re
sustained a combined ratio consistently lower than 95% (end of June 2012: 89.28%), and strong capitalization (ie RBC ratio consistently above 220%). Rating can be increased if there are developments in the practice of risk management in engineering companies such as reserving and underwriting. The main drivers for the downgrade was the company’s failure to maintain the RBC ratio above 130% sustainable and significant decline in profitability that can be caused by a deterioration in claims experience as reflected in the combined ratio is consistently above 110%.
Re monument is one of the four national reinsurance companies operating in Indonesia with a history of more than 20 years.