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FOR IMMEDIATE RELEASE
HONG KONG - NOVEMBER 09, 2010 12:00 AM (EST)
A.M. Best Co. has revised the rating outlook to positive from stable and affirmed the issuer credit rating (ICR) of "bbb" of Tugu Insurance Company Limited (Tugu) (Hong Kong). Concurrently, A.M. Best has affirmed Tugu's financial strength rating of B++ (Good). The outlook for this rating remains stable.
The revised outlook for the ICR reflects the expected improvement in Tugu's underwriting performance, which was affected by the volatility of the claims experience of the motor and employee compensation business generated in the Hong Kong market in the past five years. Going forward, the company expects that it will generate more business from PT PERTAMINA (PERSERO) (PERTAMINA) and from Indonesia through Tugu's immediate parent company, P.T. Tugu Pratama Indonesia (TPI), after Tugu became a wholly owned subsidiary of TPI in May 2010. Based on Tugu's past underwriting portfolio, the business relating to PERTAMINA and business from Indonesia were in general more profitable than the business from the Hong Kong market.
The ratings also reflect Tugu's strong risk-adjusted capitalization, conservative investment strategy and diversified business portfolio.
Tugu's risk-based capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), remains strong for year-end December 2009. The company's net premium leverage improved to 0.29 times in 2009 from 0.33 times in 2008.
Tugu has maintained a liquid and prudent investment portfolio. In 2009, its asset allocation included 68.4% of total invested assets in cash and short-term bank deposits, 23.1% in fixed income securities and 1.7% in listed equities. The company's liquidity ratios (total invested assets to total liabilities) improved to 1.05 times from 0.86 times over the past five years. A.M. Best expects that Tugu will maintain the conservative investment strategy, with an emphasis on cash and fixed income investments going forward.
The affirmation of the ratings for Tugu is based on A.M. Best's review of the financial statement of the company's parent, TPI, as well as other available public information, including public credit ratings.
The principal methodology used in determining these ratings is Best's Credit Rating Methodology - Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best's rating process and highlights the different rating criteria employed. Additional key criteria utilized include: "Understanding Universal BCAR"; "Natural Catastrophe Stress Test Methodology"; "Rating Members of Insurance Groups"; and "Assessing Country Risk." Methodologies can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers.