OREANDA-NEWS. Fitch Ratings Indonesia has assigned Credit Guarantee and Investment Facility (CGIF) a National Insurer Financial Strength (IFS) Rating of 'AAA(idn)' and a National Long-Term Rating of 'AAA(idn)'. The Outlook is Stable.

'AAA(idn)' Long-Term National Ratings denote the highest ratings assigned by Fitch on its national rating scale for that country. This rating is assigned to issuers or obligations with the lowest expectation of default risk relative to all other issuers or obligations in the same country.

In Fitch's view, CGIF's credit profile is stronger than Indonesia's Long-Term Local-Currency IDR of 'BBB-', which supports assignment of a 'AAA(idn)' IFS rating on the national scale.

KEY RATING DRIVERS

The ratings of CGIF reflect its conservative net-par-to-capital leverage, prudent investment strategy and its operational linkage to the Asian Development Bank (ADB). CGIF has adopted ADB's operational policies and risk management framework, while also sharing its multilateral supranational status. These linkages reduce many, but not all, the risks associated with CGIF's start-up nature.

CGIF continued to employ a prudent stance in managing its capital adequacy and investment risks. The management aims to eventually manage its net par-to-capital leverage, as measured by the ratio of after-reinsurance notional insured par to capital, to 2x as its portfolio further grows, from 1.4x at end-1H16. The company has no exposure to stocks or non-investment-grade bonds.

Offsetting these positive attributes are its short operating history and high risk-insured portfolio. CGIF provides guarantees on local currency-denominated bonds issued by corporations in south-east Asia, which exposes it to issuers with non-investment-grade ratings and uncapped currency risks. CGIF's combined ratio, which is the sum of loss ratio and expense ratio, amounted to 125% in 2015 given its moderate premium volumes.

RATING SENSITIVITIES

Downgrade rating triggers include:

- The net-par-to-capital leverage ratio far in excess of 3:1,

- Losses developing in the guarantee portfolio that adversely deviated from expectation,

- A move towards a higher reliance of reinsurance protection with a reduction in the ratio of net to gross notional par insured significantly below 75%,

- CGIF's capital providers failing to pre-fund business growth with capital infusion, and instead allowing the leverage ratio to (even temporarily) exceed planned benchmarks.

CGIF's National IFS Rating and National Long-Term Rating are already at the highest possible level and cannot be upgraded.