OREANDA-NEWS.  Fitch Ratings Indonesia has assigned PT (Persero) Asuransi Kredit Indonesia (Askrindo) a National Insurer Financial Strength (IFS) Rating of 'AA+(idn)'. Fitch Ratings has also assigned an IFS Rating of 'BB+'. The Outlooks are 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 rating reflects Askrindo's 100% state ownership and history of government support through a series of capital injections over the last five years. It also reflects Askrindo's role as one of the two institutions mandated to provide credit guarantee services in the form of Kredit Usaha Rakyat (KUR), or People's Business Credit. Askrindo was established mainly to support micro, small and medium enterprises. The rating also considers Askrindo's high business concentration risk - the company entire book of business is sourced in locally, which makes it vulnerable to Indonesia's economic conditions.

Askrindo has a strong market presence in the Indonesian credit insurance market, healthy operating performance and strong capitalisation. The company's operating profitability has improved since 2011 following enhanced performance of its KUR business. The KUR business is potentially volatile given the higher inherent loan risks compared with the non-KUR business, but Fitch expects the company to constantly evaluate the impact of the terms and conditions of its KUR standard operating procedures on its underwriting results so as to maintain sound operating profitability. The company posted a combined ratio of 83.9% at end-2014 based on its consolidated financials.

The KUR business accounted for more than 50% of Askrindo's total premium income at end-2014. The government reviews the KUR programme periodically and the company is in transition to a new version of the programme. Fitch believes that the continuance of the KUR programme or similar will support the company's profile.

In view of the company's high risk retention, which averaged more than 95% of total gross written premiums over the last five years, Fitch expects Askrindo to gradually enhance the sophistication of its risk management and maintain its sound capital buffer to support its underwriting and business expansion. The company's capitalisation, as measured by its risk-based capitalisation (RBC) ratio, is very strong. Its RBC ratio was 749.5% at end-2014, much higher than the minimum regulatory requirement of 120%.

The insurer adopts a prudent and highly liquid investment mix. Cash equivalents and fixed-income instruments have consistently formed more than 80% of the company's total invested assets over the last five years.

RATING SENSITIVITIES

Key rating triggers for a downgrade include weakening of government support or downgrade of Indonesia's sovereign rating (BBB-/Stable). A significant deterioration in Askrindo's financial fundamentals such as weakening market franchise, financial performance and capitalisation relative to its business profile, with combined ratio above 100% and RBC ratio below 300% on a prolonged basis could also lead to a downgrade. A rating upgrade is unlikely in the near term.