SINGAPORE--(BUSINESS WIRE)--AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of PT Asuransi Tugu Pratama Indonesia Tbk (TUGU) (Indonesia).
The Credit Ratings (ratings) reflect TUGU’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management. The ratings also factor in a neutral impact from TUGU’s ultimate majority parent, PT Pertamina (Persero) (Pertamina), a state-owned energy company in Indonesia.
The revision of the outlooks to negative from stable reflect the trend of deterioration in TUGU's underwriting performance over recent periods, and AM Best’s expectation for overall operating performance to remain constrained over the near to medium term.
TUGU’s balance sheet strength is underpinned by its risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which remains at the strongest level. Capital adequacy is supported by its low net underwriting leverage and ongoing internal capital generation. TUGU’s investment portfolio is viewed to be of moderate risk and generally diversified. Cash, deposits and bonds made up more than half of its total investments in 2021, with the remainder in investment properties and equity investments. An offsetting factor is TUGU’s dependence on reinsurance to support the underwriting of large commercial risks, including aviation and energy business. The majority of reinsurance assets are of good credit quality although TUGU maintains some exposure to reinsurance counterparties that are not rated on an international financial strength rating scale.
AM Best views TUGU’s operating performance as strong. Profitable business from its parent group, PT Pertamina (Persero) (Pertamina), remains the key contributor to TUGU’s strong operating performance. However, underwriting performance has deteriorated in the two most recent financial years, accompanied by an increasing trend of operating expense ratio, and underwriting losses at its reinsurance subsidiary, PT Tugu Reasuransi Indonesia (Tugu Re). Pre-tax profits increased 15% in the first nine months of 2022 compared with the same period in 2021 supported by higher investment income although underwriting performance remains below historical achievements. Despite ongoing portfolio remediation measures, recovery in consolidated performance to the robust level of profitability seen prior to 2020 may remain challenged by claims normalisation, tighter reinsurance market conditions, and volatility arising from Tugu Re’s exposure to legacy credit, life and health reinsurance over the near to medium term.
AM Best considers TUGU’s business profile to be neutral. TUGU is a large insurance group in Indonesia, ranking number five by market share in 2021 in the domestic general insurance market, and additionally writes reinsurance through Tugu Re. TUGU has a strong market position in commercial and industrial risks, including the energy, aviation and engineering business segments, and benefits from favourable business access to affiliated business from the Pertamina group. Business diversification is expected to be supported by strategic expansion to the non-captive corporate sector and retail business over time, although this may also lead to greater underwriting volatility over the near to medium term.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
This press release relates to Credit Ratings that have been published on AM Best’s website.
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