OREANDA-NEWS. Fitch Ratings Indonesia has assigned PT Reasuransi Nasional Indonesia (Nasional Re) a National Insurer Financial Strength (IFS) Rating of 'AA-(idn)'. Fitch has also assigned the company an IFS Rating of 'BB-'.The Outlook on the ratings 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 ratings reflect Nasional Re's business concentration in the catastrophe-prone Indonesian market and its strong market profile in Indonesia with more than 15 years of operating history. The ratings also consider the company's capitalisation, which is weak relative to its business operations and domestic peers; its fast-growing, healthy operating performance and conservative investment portfolio.

Nasional Re captured a leading market share of about 34% of the total domestic gross reinsurance premiums in 2014. It is the second-largest reinsurer in Indonesia based on total asset size in 2014. Its overall market scale is small when compared with regional reinsurance peers as the majority of the reinsurance premiums in Indonesia are ceded to offshore reinsurers.

The reinsurer's capitalisation, measured by the regulatory risk-based capital (RBC) ratio, has been marginally above the regulatory minimum of 120% over the last four years. Its RBC ratio stood at 142.4% as of end-August 2015, following a capital injection from its parent in June 2015. In view of regulatory changes to encourage greater optimisation of domestic reinsurance capacity, Fitch expects Nasional Re to improve its capital position to keep up with continued business expansion and ensure sufficient capital buffers against adverse shocks.

Nasional Re's gross premium growth on a three-year average is around 40.4% and is the highest among its local reinsurance peers. Its underwriting performance has been healthy in the last four years and its combined ratio (aggregate of non-life loss ratio and expense ratio) has remained below 95%. Lower claims frequency, manageable underwriting expenses and steady investment returns have also translated into a favourable bottom-line performance. Nonetheless, continued business expansion is a key risk, particularly if underwriting standards deteriorate and capitalisation buffers are eroded.

The company follows a prudent and highly liquid investment approach, with more than 90% of its invested assets placed in cash and equivalents and fixed-income securities at end-June 2015. Some of the cash was placed in banks rated below investment-grade or unrated. Nasional Re has minimal exposure to risky assets, such as unaffiliated stocks, which constituted less than 5% of the total invested assets and represented 5.7% of its adjusted equity.

RATING SENSITIVITIES

Key rating triggers for an upgrade include a sustained improvement in Nasional Re's capitalisation with the regulatory RBC ratio consistently above 180%, with market position and operating performance maintained and a combined ratio consistently below 95%.

Key rating triggers for a downgrade include a significant deterioration in capitalisation with regulatory RBC ratio persistently below 130%, a weakening of market franchise or operating performance with combined ratio above 105% over a prolonged period.