OREANDA-NEWS. PT Fitch Ratings Indonesia has affirmed Indonesia-based PT Asuransi Sinar Mas's (ASM) National Insurer Financial Strength (IFS) Rating at 'AA+(idn)' with Positive 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 Positive Outlook continues to reflect ASM's better operating performance and Fitch's expectations that ASM will further improve its capitalisation while maintaining its strong credit fundamentals. The company's rating reflects ASM's strong market franchise and solid capitalisation. It also considers the company's investment risk profile, healthy operating profitability and management of catastrophe risks in the catastrophe-prone Indonesian market.

ASM remains the leading non-life insurer in Indonesia and it controlled 8.6% of the market by gross premiums in 2014. Its capitalisation, measured by regulatory risk-based capital (RBC) ratio, has remained consistently above 200% over the past five years - well beyond the regulatory minimum of 120%. Its RBC ratio declined slightly to 307% at end-May 2015 (end-2014: 338%) but the company is committed to improve its RBC ratio to above 350% by end-2015, underpinned by ongoing surplus growth.

ASM's investment portfolio mix was liquid with cash comprising more than 35% of its total invested assets as of end-May 2015. Mutual funds formed 54% of its total invested assets, with more than 60% placed in bond-related funds. The company has minimal exposure to unaffiliated common stocks, at 4.8% of its adjusted equity as of end-May 2015. Some of the company's cash holdings are placed in banks rated below investment-grade or unrated for business reciprocal purpose. Fitch expects ASM's investment risk to remain manageable relative to its capitalisation.

Disciplined underwriting continued to support ASM's operating performance in May 2015. Its combined ratio (the aggregate of commission expense and incurred loss ratio) consistently remained below 90% over the last five years and was 74.9% at end-May 2015 (end-2014: 73.4%). Steady healthy investment returns have also contributed favourably to ASM's bottom-line profitability over the years. Fitch believes ASM's capitalisation will continue to improve, driven by surplus growth as it maintains its operating performance.

ASM mitigates its catastrophe risks through placement in several proportional and non-proportional reinsurance treaties. Its protection limit for 2015 is adequate to cover the insurer's aggregate probable maximum loss for its property, engineering and motor lines for a return period of more than 700 years.

RATING SENSITIVITIES
Key rating triggers for an upgrade include sustainable improvement in ASM's capitalisation relative to its rated peers, with a regulatory capital ratio consistently above 350% and maintenance of its operating performance, with combined ratio staying consistently below 90%.

Key rating triggers for a downgrade include significant deterioration in the insurer's capitalisation in relation to its business profile, or deterioration in operating performance with a combined ratio above 100% and net premiums written to adjusted equity rising above 2x for a prolonged period. A rating downgrade is unlikely in the near term.