RPT-Fitch Affirms ASM at IFS 'AA+(idn)'; Revises Outlook to Positive

Fri Mar 7, 2014 4:20am EST

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March 7 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed Indonesia-based PT Asuransi Sinar Mas's (ASM) National Insurer Financial Strength (IFS) Rating at 'AA+(idn)'. The Outlook has been revised to Positive from Stable. '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 revision of the Outlook to Positive reflects Fitch's view that ASM's operating performance and capitalisation will continue to improve, while its balance sheet fundamentals remain strong.

The rating continues to take into account ASM's ability to maintain a strong market franchise. ASM is the largest non-life insurer in Indonesia by gross premiums, with around 10% market share as of end-2012. The company's strong market presence is rooted in its ability to disseminate insurance products through multiple distribution channels as well as its strong brand recognition derived from its long track record in the industry.

The company has been consistently profitable and demonstrated a trend of improving underwriting margin due to its steady premium income and prudent underwriting. Its combined ratio (the aggregate of the commission expense ratio and incurred loss ratio) consistently remained below 90% over the last five years and amounted to 79.3% at end-Oct 2013 (2012: 80.5%, 2011: 87.6%).

ASM has also maintained a sufficient capital buffer, with its risk-based capitalisation (RBC) ratio remaining above 200% over the past five years, well above the minimum regulatory requirement of 120%. Its RBC ratio improved to 338.91% as of the end of the third quarter of 2013 from 300% at end-2012.

ASM sources its business almost entirely from the Indonesian market. Indonesia is considered a catastrophe-prone market as it suffers from various natural disasters such as earthquakes, floods and tsunamis. It is therefore important for ASM to maintain a prudent reinsurance programme to support its operations and business growth.

RATING SENSITIVITIES

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

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-equity rising above 2x (end-Oct 2013: 0.99x) for a prolonged period.

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