Fitch upgrades Indonesia Re

Fitch Ratings has upgraded Reasuransi Indonesia Utama (Persero)'s (Indonesia Re) international Insurer Financial Strength (IFS) Rating to 'BBB-' (Good) from 'BB+' (Moderately Weak). Fitch Ratings Indonesia has also affirmed the company's National IFS Rating of 'AA (idn)'.

The one-notch upgrade of the international IFS rating reflects the improvement in Indonesia Re's asset quality during the last three years. The rating is also supported by the company's strong ties with the Indonesian government (BBB/Stable) as it is fully state-owned, its strong capitalisation to support business growth, and moderate business profile and financial performance, the agency said.

Indonesia Re was merged with PT Reasuransi Internasional Indonesia in 2015. It captured an overall domestic market share of 35 percent by gross reinsurance premiums in 2017. However, Fitch sees the company's business profile as moderate relative to domestic and regional reinsurance peers.

Fitch views Indonesia Re's capitalisation as strong. The company's regulatory risk-based capital (RBC) ratio was 312 percent at end-2017 (end-2016: 315 percent); exceeding the minimum 120 percent regulatory requirement and commensurate with its rating profile. Due to business expansion, the company expects its RBC ratio to decline but remain above 250 percent by end-2018.

The improvement in the reinsurer's asset quality was evident in the decline in the exposure to risky assets relative to capitalisation to 32 percent at end-2017 (end-2016: 40 percent). The company adopts a liquid and prudent investment mix, with more than 80 percent of its invested assets placed in cash and equivalents and fixed-income securities at end-2017, Fitch noted.

Indonesia Re demonstrates good financial performance, with its combined ratio (aggregate of non-life loss ratio and expense ratio) at a three-year average of 96 percent, the report stated. “This is underpinned by its selective underwriting, steady premium growth and manageable claims. Stable investment returns have also contributed favourably to bottom-line profitability,” Fitch said.

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