RPT-Fitch Affirms Tugu Pratama Indonesia at IFS 'AA-(idn)'; Stable
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Aug 20 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmed Indonesia-based PT Tugu Pratama Indonesia's National Insurer Financial Strength (IFS) Rating at 'AA-(idn)'. The Outlook is Stable.
Key Rating Drivers
The rating reflects Tugu Pratama's significant presence in the Indonesian non-life insurance market and capital support, if needed, from its 65% shareholder, PT Pertamina (BBB-/Stable), a major state-owned oil and gas company. It also considers Tugu Pratama's healthy operating performance and strong capitalisation.
Tugu Pratama's operating performance has remained healthy with a pre-tax return on assets and a return on adjusted equity amounting to 3.7% and 10.5% respectively at end-2012. Its risk-based capitalisation (RBC) ratio remained high at 350% as of end-2012 (2011: 322.9%). The ratio remained at above 300% at end-June 2013. Tugu Pratama is wholly financed by equity, with no debt issuance. Shareholders' equity represented 31.4% of its total assets at end-2012.
Tugu Pratama's business portfolio continues to be challenged by pressure to improve its diversification to reduce underwriting volatility, given its exposure (2012: 50% of gross premiums) to the oil and energy sector. At end-2012, its combined ratio based on consolidated financials amounted to 90.7%. The Stable Outlook reflects Fitch's expectation that Tugu Pratama will continue to maintain sufficient capital buffer relative to its operating portfolio.
Key rating triggers for an upgrade include successful management of operating expenses and risk diversification away from energy businesses which translate into a more stable underwriting performance with a combined ratio consistently lower than 100%.
Key rating triggers for a downgrade include material weakening of its capital in relation to its business profile, with a RBC ratio consistently below 250%, which impairs its operating profile or ability to support underwriting risks. The rating could also be downgraded on weakening risk management and a sharp rise in post-reinsurance underwriting risks relative to equity.
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