OREANDA-NEWS. June 30, 2015. Fitch Ratings Indonesia has affirmed Indonesia-based PT Reasuransi MAIPARK Indonesia's National Insurer Financial Strength (IFS) Rating at 'BBB+(idn)'. The Outlook is Stable.

The company was previously known as PT Asuransi MAIPARK Indonesia.

'BBB' National IFS Ratings denote an adequate capacity to meet policyholder obligations relative to all other obligations or issuers in the same country, across all industries and obligation types. However, changes in circumstances or economic conditions are more likely to affect the capacity for payment of policyholder obligations than for financial commitments denoted by a higher rated category.

KEY RATING DRIVERS
The rating reflects MAIPARK's business concentration in the reinsurance of earthquake risks in the catastrophe-prone Indonesian market. It also takes into account the company's healthy operating performance, strong risk-based capitalisation and liquid investment mix.

MAIPARK has been consistently profitable since its inception, supported by stable investment yields and steady premium income. Its underwriting margin has remained sound with a combined ratio of 63.1% as of end-2014, supported by the absence of major earthquakes during 2014. This level is an increase from 56.8% at end-2013, mainly due to an increase in claims reserve provision and higher expenses ratio as the company has started to calculate profit commission for its ceding companies in 2014. MAIPARK's operating performance as of end-April 2015 has been largely in line with the company's projections.

MAIPARK's risk-based capitalisation has remained strong, amounting to 917.4% as of end-April 2015, much higher than the minimum requirement of 120%. In view of its specialist business nature, Fitch expects the company's RBC to be maintained at a level much higher than the regulatory minimum to provide sufficient capital buffer.

Cash and time deposits made up the majority of its investment portfolio over the last five years. At end-2014, the proportion of cash and time deposits fell to 76.4% of MAIPARK's investment portfolio as the company decided to divert some of its cash into mutual funds and property investments, which mostly have guarantees from the sellers to buy back the assets in two years. Nonetheless, MAIPARK's investment mix has remained highly liquid. The company's exposure to risky assets such as stocks and properties was 23.9% of its shareholders' equity at end-2014, well above the median for its rating category. MAIPARK's investment mix as of end-April 2015 has remained largely in line with that at end-2014.

The company regularly monitors its risk exposure, and assesses its risk accumulation after the regulator raised the mandatory cession of earthquake premiums to 15% of the total sum insured. The maximum limit is USD3.5m for any one risk across all zones beginning in 2014, from as low as 5% of the total sum insured with maximum limit of USD2.5m on any one risk (depending on the zone), previously. MAIPARK has added a few optional layers to its retrocessionaires arrangement to mitigate its catastrophe risks.

The Stable Outlook reflects Fitch's expectation that MAIPARK will continue to maintain a sufficient capital buffer and adequate retrocession coverage to support its ongoing business growth and shield itself from potential shocks.

RATING SENSITIVITIES
Key rating triggers for an upgrade include the company's ability to enhance its risk management capabilities, such as reserving techniques and catastrophe modelling, and sustain its operating profitability, with a pre-tax return on assets consistently above 20% (2014: 17.3%).

Key rating triggers for a downgrade include significant deterioration in the reinsurer's premium sustainability, operating performance, and capital, relative to its business portfolio (that is, statutory risk-based capital below 250% for a sustained period) due to excessive growth or claims from catastrophe losses.