Fitch Upgrades MAIPARK to IFS 'A-(idn)'; Outlook Stable
OREANDA-NEWS. Fitch Ratings Indonesia has upgraded Indonesia-based PT Reasuransi MAIPARK Indonesia's (MAIPARK) National Insurer Financial Strength (IFS) Rating to 'A-(idn) from 'BBB+(idn)'. The Outlook is 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
Fitch has upgraded MAIPARK's rating due to its consistently sound operating performance, which is supported by robust risk-based capitalisation and enhanced risks management. The rating is constrained by MAIPARK's business concentration in the reinsurance of earthquake risk in Indonesia, which leaves it highly exposed to catastrophe risk, and the company's small market size compared with peers. The rating also takes into account MAIPARK's conservative investment portfolio.
MAIPARK's niche business translates into relatively small asset and premium size compared with other local reinsurers and those in the Asia-Pacific. The company captured a market share of 3.91% by total domestic reinsurance industry gross written premiums at the end of 2014, following steady growth since its establishment in 2003.
MAIPARK's capitalisation is consistently strong, with its local solvency ratio over the last five years staying above 700%, well above the minimum regulatory requirement of 120%. Its risk-based capitalisation (RBC) ratio increased to 1,118.8% at end-2015, supported by its surplus growth and conservative investment portfolio. This level of capitalisation supports MAIPARK's growth and provides it with an adequate buffer to shocks, particularly as it concentrates on providing earthquake reinsurance.
The reinsurer profitability has been steady since its inception, supported by stable investment yields, effective cost management and steady premium income. The company's adequate retrocession coverage has also shielded it from underwriting volatility caused by several earthquake losses over the years. Its return on equity has remained above 20% over the last five years and improved to 23.2% at end-2015 from 21.6% at end-2014 based on its unaudited financials. The company's combined ratio has been consistently low, at below 70% over the last five years.
MAIPARK's investment mix is highly liquid and conservative, with more than 80% of its invested assets comprising cash and deposits at end-2015. Like other domestic reinsurers and insurers, some of the company's cash holdings are placed in banks rated below investment-grade or unrated.
The company has enhanced risk management capabilities over the years. For example, the company has constructed an internal catastrophe modelling tool, launched an enterprise risk management system and developed an internal audit unit to monitor its risks more closely.
The Stable Outlook reflects Fitch's expectation that MAIPARK will continue to maintain a sufficient capital buffer and adequate retrocession coverage to support its ongoing business growth and shield itself from potential shocks.
Key rating triggers for an upgrade include the company's ability to significantly enhance its market presence with less dependence on mandatory cession, further improve its risk management capabilities and sustain its operating profitability.
Key rating triggers for a downgrade include significant deterioration in the reinsurer's premium sustainability, operating performance (with a combined ratio consistently above 100%), and capital, relative to its business portfolio (that is, statutory risk-based capital below 300% for a sustained period) due to excessive growth or claims from catastrophe losses. A material increase in the company's net probable maximum losses relative to equity could also result in a rating downgrade.