OREANDA-NEWS. Fitch Ratings Indonesia has affirmed PT Maskapai Reasuransi Indonesia Tbk's (Marein) National Insurer Financial Strength (IFS) Rating of 'A+(idn)'. Fitch Ratings has also affirmed the company's international IFS Rating of 'BB'. The Outlooks are Stable.

'A' National IFS Ratings denote a strong capacity to meet policyholder obligations relative to all other obligations or issuers in the same country, across all industries and obligation types. However, changes in circumstances or economic conditions may affect the capacity for payment of policyholder obligations to a greater degree than for financial commitments denoted by a higher rated category.

KEY RATING DRIVERS

The rating affirmation reflects Marein's high business concentration in catastrophe-prone Indonesia, its modest market position and small asset size compared with some of its local and regional peers, despite its long operating record. The rating also considers Marein's conservative investment portfolio, strong capitalisation and sound operating performance.

Marein's market share was around 12% in 2015, as measured by total industry gross written premiums (GWP). The company remains focused on sound bottom-line performance through prudent underwriting rather than mere top-line growth, despite regulations introduced in 2014 encouraging cedants to optimise local reinsurance capacity. More than 70% of its GWP were derived from the life reinsurance business in 2015. Fitch believes Marein would benefit from expanding its non-life business to lower concentration risk by reducing reliance on the life segment and strengthening its overall market position in Indonesia's reinsurance market.

The reinsurer's investment portfolio remained prudent and liquid in 2015, with cash and cash equivalents representing around 60% of total invested assets. Marein's exposure to risky assets, such as equities, is manageable relative to its capitalisation. However, some of its cash and deposits were placed with banks rated below investment-grade in 2015. Fitch does not expect Marein's investment mix to deviate significantly in the near term.

Ongoing surplus growth continued to support Marein's strong capital profile in 2015. The company's capitalisation, measured by the regulatory risk-based capital ratio, improved to 296% in 2015, from 230% in 2014, well-above the 120% minimum statutory requirement.

The reinsurer's operating performance remained healthy in 2015, backed by steady premium growth, stable investment returns and manageable underwriting expenses. Its bottom-line profitability, measured by ROE, was 24% in 2015, well within the median guidelines for its rating category. Marein's non-life underwriting margin, measured by its combined ratio, was stable at below 100%. Fitch expects the reinsurer to carefully manage its catastrophe risk exposure to minimise volatility in its underwriting performance, considering its small book of non-life business.

The Stable Outlook reflects Fitch's expectation that Marein will maintain sufficient capital buffers and prudent underwriting practices to support its operation and business expansion.

RATING SENSITIVITIES

Key rating triggers for a downgrade include significant deterioration in operating performance, with a combined ratio consistently higher than 100%, and weakening capitalisation, with the local statutory ratio below 180% on a sustained basis. Material deterioration in market franchise could also lead to a rating downgrade.

Key rating triggers for an upgrade include enhanced fundamentals, such as a strengthened market franchise and successful diversification to a more balanced business portfolio, while maintaining healthy operating performance and capitalisation.