OREANDA-NEWS. Fitch Ratings Indonesia has assigned PT Finansial Wiramitra Danadyaksa (FWD Life Indonesia) a National Insurer Financial Strength (IFS) Rating of 'A(idn)'. The Outlook is Stable.

'A' National IFS Ratings denote a strong 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 may affect the capacity for payment of policyholder obligations to a greater degree than for financial commitments denoted by a higher rated category.

KEY RATING DRIVERS

The rating reflects FWD Group's commitment to provide capital support to FWD Life Indonesia, which Fitch views as credit positive. However, the rating is constrained by the company's limited track record, associated business execution risks and small market position, amid the competitive life insurance operating environment in Indonesia.

FWD Life Indonesia is 50.1% owned by FWD Group. It capitalises on its parent's branding and draws upon the group's expertise and resources including risk management and information technology. Fitch believes the sharing of technical know-how could help the Indonesian insurer build up its business franchise with minimal costs and risks over time.

Fitch expects FWD Life Indonesia's capitalisation to remain sound as it expands its business over the next five years, underpinned by ongoing capital injections from its parent. Fitch estimates its asset leverage will reach 10.4x by 2017. The company aims to maintain its regulatory solvency ratio at above 200% in the next five years, commensurate with its rating profile.

FWD Life Indonesia expects operating losses in the next four years due to higher initial outlay costs associated with brand building and network expansion. It aims to be profitable by 2019 through strategically focusing on regular-premium unit-linked and higher-margin protection products. This will be supported by the expansion of its distribution networks in tied agency, bancassurance and e-commerce. Fitch believes that failure to execute its business plans appropriately and successfully could result in expense overruns and affect the company's financial stability.

FWD Life Indonesia obtained its insurance licence in February 2013, and started writing business in 2014. It had value of new business premiums of about IDR22bn at end-2014. Its market size measured by total assets and equity is small, relative to its peers.

RATING SENSITIVITIES

Key rating triggers for a downgrade include a perceived weakening of support from FWD Group. Weaker-than-expected business growth and/or market franchise, poor operating performance over a prolonged period or significant deterioration in capitalisation, with the regulatory capital ratio persistently below 200%, could also lead to a rating downgrade.

Key rating triggers for an upgrade include a significant and sustained improvement in the company's standalone profile over the next three to five years in terms of market franchise, business growth and profitability, with ROE consistently above 5%.