OREANDA-NEWS. PT Fitch Ratings Indonesia has affirmed Indonesia-based PT Avrist Assurance's (Avrist) National Insurer Financial Strength Rating at 'AA-(idn)'. The Outlook is 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 company's rating reflects Avrist's small market franchise, strong capital position and conservative investment portfolio. The rating also considers the company's business concentration in Indonesia, which has a weaker operating framework compared with other developed markets in the region, as well as Avrist's healthy, fast-growing operating performance.

Avrist has 40 years of operating history and was the 16th-largest life insurer in Indonesia with around 1.4% market share by total gross written premiums at end-1Q15. The company's capitalisation, measured by its regulatory risk-based capitalisation (RBC) ratio, is strong at 443% at end-June 2015 (2014: 445%). This is well above the minimum regulatory requirement of 120%.

Fitch considers the company's investment portfolio conservative, with cash and cash equivalents and fixed-income securities forming the majority of the company's invested assets. Some of its cash holdings are placed with banks rated below investment-grade or unrated. The company's conservative investment portfolio and strong capitalisation mitigate the potentially volatile revaluation reserve.

Avrist's operating performance has been favourable over the last five years, supported by the company's prudent underwriting practices and stable expense management. The company's unaudited consolidated gross written premiums were IDR1.032trn at end-June 2015, a 39.5% increase from a year earlier. The company's premium income rose sharply in 2014, driven by Avrist's campaign to boost sales of individual life policies through its bancassurance channel.

This strategy has increased the contribution of the traditional life business to Avrist's total business portfolio to more than 60% at end-2014 from 50.8% at end-2013. The shift towards traditional products could help Avrist's long-term premium sustainability as these products are more resilient in times of liquidity crisis. Avrist has so far maintained a strict underwriting approach to support its business expansion and operating performance, and kept its top-line growth in line with its capitalisation.

The Stable Outlook reflects Fitch's expectation that Avrist will maintain its healthy financial fundamentals and sound capital buffer relative to its operating profile.

RATING SENSITIVITIES

Key rating triggers for an upgrade include a stronger business franchise and increased market recognition. The rating may also be upgraded due to enhanced premium sustainability - with successful diversification into traditional life protection products - and improved operating performance, with a pre-tax return on assets consistently above 3.5% (annualised end-June 2015: 2.9%).

Key rating triggers for a downgrade include a significant weakening of Avrist's capitalisation in relation to its business profile, with the RBC ratio consistently below 300%, and deterioration in business performance with a persistency ratio for first-year premiums at below 80% for a prolonged period.