Fitch Affirms Askrindo at IFS 'AA+(idn)/BBB-'; Outlooks Stable
'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 company's ratings reflect Askrindo's 100% state ownership and history of state support through a series of capital injections over the last five years. They also reflect its role as one of two institutions mandated to provide credit guarantee services in the form of Kredit Usaha Rakyat (KUR), or People's Business Credit, which was established mainly to support micro, small and medium enterprises.
The ratings also take into consideration Askrindo's high business concentration risk. The company's entire book of business is sourced locally and its business focus is on KUR, making Askrindo vulnerable to Indonesia's economic conditions. The ratings also reflect the company's market position as a leading credit insurer, with robust capitalisation and a healthy financial performance.
Askrindo's market share was around 4.3% on a standalone basis in 2015, as measured by total industry gross written premiums. The company has maintained its strong capitalisation as measured by the risk-based capitalisation ratio, which was around 600% on a standalone basis at end-June 2016. This was much higher than the 120% minimum regulatory requirement. Fitch expects Askrindo to maintain a sound capital buffer to support its underwriting and business expansion.
Askrindo's underwriting margin, measured by its combined ratio, remained favourable at below 100% on a standalone basis as at end-June 2016. Fitch expects the company to constantly evaluate the effect of the terms and conditions of its KUR standard operating procedures on its underwriting results to maintain sound operating profitability, due to the potential volatility of its KUR business from higher inherent loan risks compared with non-KUR business. Askrindo aims to enhance business monitoring and tighten cooperation with banks through business engagement to minimise the volatility of its underwriting performance. This follows a reduction in KUR-scheme tariffs in 2015.
Key rating triggers for a downgrade include weakening state support or a downgrade of Indonesia's Long-Term Local-Currency Issuer Default Rating (BBB-/Stable). A significant deterioration in Askrindo's financial fundamentals, such as weakening market franchise, financial performance and capitalisation relative to its business profile, with a combined ratio above 100% and a risk-based capitalisation ratio below 300% on a prolonged basis, could also lead to a downgrade.
A rating upgrade is not probable in the near term.