OREANDA-NEWS. Fitch Ratings Indonesia has affirmed PT Asuransi Asei Indonesia's (Asuransi Asei) National Insurer Financial Strength (IFS) Rating at 'AA-(idn)' with a 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

The rating affirmation reflects Asuransi Asei's small market franchise and strong capitalisation, which is commensurate with its rating profile. The rating also reflects the company's record of manageable but volatile underwriting performance, its conservative investment approach and mitigation of catastrophe risks through reinsurance.

Asuransi Asei's market share of the industry's gross written premiums was around 1.2% in 2015. Fitch considers the company's market size and scale as small when compared with some of the major domestic players and global peers. The company is a subsidiary of PT Reasuransi Indonesia Utama (Persero), which was originally PT Asuransi Ekspor Indonesia (Persero) and subsequently became PT Asei Reasuransi Indonesia (Persero) (Asei Re) in 2014. Asuransi Asei was created from Asei Re's direct insurance business in October 2014.

The company's capitalisation of 169% in 2015, as measured by its risk-based capitalisation (RBC) ratio, is commensurate with its rating category and above the 120% minimum regulatory requirement. Asuransi Asei's management has said the group is committed to maintaining the company's RBC ratio at a minimum of 145%. Fitch expects the insurer to maintain a sufficient capital buffer to support its underwriting and investment risks.

The company's underwriting performance, as measured by its combined ratio, improved to 107.2% in 2015, from 155.4% in 2014. Nevertheless, Fitch considers this as weak compared with Fitch-rated non-life peers. The company has said it is tightening its underwriting practices with more selective risk acceptance and improving its operational expense efficiency in response. Failure to maintain stable operating performance could undermine Asuransi Asei's ratings stability, in view of its volatile underwriting results.

The company has more than 70% of its invested assets in cash and equivalents and fixed-income securities in 2015. Its exposure to below-investment grade bonds and risky assets, which include unaffiliated stocks, and non-investment grade bonds remains low compared with its adjusted equity and the median ratio guidelines for its rating category.

Asuransi Asei mitigates its catastrophe exposure through surplus, quota share and excess-of-loss reinsurance treaties. Fitch expects the company to apply prudent and timely monitoring and assessment of its catastrophe risk exposure and to maintain adequate reinsurance protection to keep its probable maximum loss after reinsurance coverage at a manageable level relative to its capitalisation.

RATING SENSITIVITIES

Key rating triggers for a downgrade include a material deterioration of Asuransi Asei's standalone credit profile. This could include prolonged poor operating performance, with its combined ratio staying above 110% for an extended period, and weakening capitalisation, with its RBC ratio falling below 130% on a sustained basis.

Key rating triggers for an upgrade include Asuransi Asei's ability to strengthen its market franchise, improve its underwriting margin, with a combined ratio consistently lower than 90%, and enhance its capital position, with its RBC ratio staying above 200% on a sustained basis.