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FOR IMMEDIATE RELEASE
SINGAPORE - SEPTEMBER 21, 2017 10:53 AM (EDT)
A.M. Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of PT Tugu Pratama Indonesia (TPI) (Indonesia). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect TPI’s favorable operating performance and very strong risk-adjusted capitalization, which is supported by low net and gross underwriting leverage measures. TPI’s capital position strengthened to USD 423 million as of June 2017 from USD 232 million in 2015 primarily due to a property revaluation gain. In March 2017, TPI increased its ownership in its reinsurance affiliate, PT Tugu Reasuransi Indonesia (TRE), to 50.27% from 37.66%. As a result, TPI’s consolidated catastrophe exposure and underwriting leverage are expected to increase. However, based on TPI’s business plan and its strengthened capital position, A.M. Best expects that TPI’s risk-adjusted capitalization will remain supportive of its ratings. TPI’s operating performance has been favorable, with both underwriting and investments contributing to capital generation. The company’s combined ratio and return on premium ratio stood at 83% and 61%, respectively, in the five years ending in 2016.
Offsetting rating factors include declining business volumes from TPI’s parent, PT Pertamina (Persero), which generates the majority of TPI’s underwriting profits, and the low profitability of non-Pertamina business, which could weaken TPI’s future profit margins. In the past year, TPI also experienced expense ratio pressure, partly due to spending on strategic initiatives such as an initial public offering and insurance system upgrades. TRE’s consolidation also presents execution risk for TPI, as TRE will represent a significant portion of TPI’s consolidated premiums and results going forward.
While positive rating actions are unlikely, negative rating pressure could result from a material decline in TPI’s risk-adjusted capitalization due to higher-than-anticipated catastrophe exposure or lower-than-expected reinsurance asset quality. A weakening trend in profitability also could result in negative rating pressure.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
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