Fitch Ratings has affirmed PT Tugu Reasuransi Indonesia's (Tugu Re’s) National Insurer Financial Strength (IFS) rating at “A” with a stable outlook.
According to the agency, “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.
Fitch stated: “The rating reflects Tugu Re's steadily growing market presence in the Indonesian reinsurance market with more than 20 years of operation history, its healthy operating performance and manageable investment risks.”
Despite this, Fitch also noted that the company's rating continues to be constrained by its “weak capitalisation” relative to business operations and high business concentration in Indonesia.
Tugu Re's combined ratio increased to 101.3 percent at the end of 2014 from 96.4 percent at the end of 2013 due to higher claims experience and increased expense ratio.
Fitch has said it expects the company to “carefully manage” its underwriting margin through tighter underwriting and enhanced expense ratio management as its business portfolio expands.
“Nonetheless, Tugu Re's operating performance has been supported by its sound premium growth and steady investment results,” added Fitch.
Its return on adjusted equity was to 23.3 percent at the end of 2014 compared with 26.4 percent at the end of 2013.
Tugu Re's shareholders have helped to increase the company's capitalisation through a series of capital injections and the conversion of a subordinated loan into paid-up capital in February 2015.
Tugu Re's capitalisation, however, is still considered weak relative to the company's business operations.
Fitch confirmed that failure to receive further capital injections to maintain an adequate capitalisation buffer could undermine the company's ratings stability in view of Tugu Re's regulatory capital position and business growth projection.
The company's risk exposure is concentrated in catastrophe-prone Indonesia, leaving it vulnerable to volatility in its underwriting business. Indonesian risks continued to represent almost 100 percent of Tugu Re's business at end-2014.
The stable outlook reflects Fitch's expectation that Tugu Re will maintain a prudent retrocession programme and an adequate capital buffer to support its operations and business expansion.
