Fitch Assigns Asuransi Asei Indonesia IFS Rating of 'AA-(idn)'
'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 reflects Asuransi Asei's small market franchise, and capitalisation strength that is commensurate with its rating profile. The rating also considers the company's track record of manageable but rather volatile underwriting performance, its adoption of a conservative investment approach, and mitigation of catastrophe risks through reinsurance.
Asuransi Asei had a market share of around 2.3% of the industry's gross written premiums at end-2014. The overall market size and scale of Asuransi Asei is considered small compared with that of some of the major domestic players and its global peers. The company is a subsidiary of PT Reasuransi Indonesia Utama (Persero) (RIU). RIU was originally PT Asuransi Ekspor Indonesia (Persero) (ASEI), which was transformed into PT Asei Reasuransi Indonesia (Persero) (Asei Re) in 2014. Asuransi Asei resulted from the spin-off of Asei Re's direct insurance business in October 2014 and is the only operating entity within the group.
The company's risk-based capitalisation (RBC) ratio was 142% at end-June 2015, marginally above the minimum regulatory requirement of 120%. Its capital quality is good, comprised wholly of equity with no planned debt issuance in the short term. Asuransi Asei's management has said that the group is committed to maintain the company's RBC ratio at the current level. Fitch expects the insurer to maintain sufficient capital buffer to support its underwriting and investment risks.
Asuransi Asei has had relatively favourable underwriting results prior to 2014. Nonetheless, poor claims have affected the company's underwriting performance in 2014, as indicated by the material increase in its combined ratio to 155.4% at end-2014 from 86.5% at end-2013. The management said the company has begun to apply a stricter underwriting approach. Any significant prolonged deterioration in the insurer's operating performance and capital buffer could undermine its rating.
More than 85% of the company's invested assets resided in cash and equivalents, and fixed-income securities at end-June 2015. Its exposure to risky assets, which include unaffiliated stocks and non-investment grade bonds, remains low compared to its adjusted equity and the median ratio guidelines for its rating category.
Asuransi Asei mitigates its catastrophe exposure through a series of surplus, quota share, and excess-of-loss reinsurance treaties. Fitch expects the company to apply prudent and timely monitoring and assessment of the company's catastrophe risks exposure and maintain adequate reinsurance protection to ensure that its probable maximum loss (PML) after reinsurance coverage is kept at a manageable level relative to its capitalisation.
The Stable Outlook reflects Fitch's expectation that Asuransi Asei will apply careful underwriting standards and maintain sufficient capital buffer to support its business operations.
RATING SENSITIVITIES
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.
Key rating triggers for a downgrade include material deterioration in Asuransi Asei's standalone credit profile, such as prolonged poor operating performance with combined ratio staying above 110% for an extended period, and weakening of capitalisation, with its RBC ratio falling below 130% on a sustained basis.
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