Fitch Ratings has affirmed PT Tugu Reasuransi Indonesia’s (Tugure) National Insurer Financial Strength (IFS) Rating at ‘A+(idn)’, with the Outlook remaining Stable.
This decision takes into account Tugure’s adequate regulatory capital position set against its underwriting performance, which is subject to some volatility — particularly from its considerable exposure to property and long-term credit insurance.
The ‘A’ National IFS Ratings signal a strong capacity for the insurer to meet policyholder obligations in comparison to other obligations or issuers within Indonesia.
Company profile
Tugu Re, an Indonesian reinsurance company, was established with the objective of enhancing the stability and capacity of the national insurance market and to more efficiently manage and disseminate risk in the industry.
More than 90% of Tugure’s business operates within the non-life insurance segment, predominantly rooted in Indonesia. Over half of its business volume comprises facultative insurance, as per the results for the first nine months of 2023 (9M23). The firm’s market share, based on Gross Written Premium (GWP), was documented at 12% in the Indonesian reinsurance market for the year 2022.
A point of concern is Tugure’s corporate governance structure, which is considered ‘Less Favourable’ owing to the shortage of independent members within its board of commissioners, contributing to a ‘Moderate’ company profile rating from Fitch.
Performance indicators
The growth of the company’s GWP slowed to 3% year-on-year in 9M23, compared to the 24% surge in the previous year. This approach marks a strategic focus on improving underwriting results over top-line expansion and occurred in the context of a market where reinsurance growth fell by 1% in the first eight months of 2023.
However, there is an expectation of persistent volatility for the combined ratio, as the insurer’s property and long-term credit insurance ventures face claim risks, amidst the context of stringent terms and conditions and increasing reserves.
The first nine months of 2023 saw a rise in the non-life combined ratio to 106%, up from 102% in the prior year. The three-year average ratio maintains at 104% for the years 2020 to 2022.
Tugu Re’s loss ratio has also escalated to 71% in 9M23, up from 65% in 2022, which Fitch attributes to higher claim reserves for the credit insurance sector and substantial claims in the property business. Fire and credit insurance rank as the most significant contributors to the insurer’s GWP, at 33% and 20%, respectively. Also of note is the credit insurance loss ratio, which rose consistently over the past three years, registering at 76% in 9M23 (2022: 73%, 2021: 56%).
With regards to the reinsurer’s capitalisation, Tugu Re has managed to keep its risk-based capital (RBC) ratio well above the 120% regulatory minimum. However, the ratio did see a decline from 249% at the end of 2022 to 209% by the end of September 2023 subsequent to an increased reserve for the credit insurance business, marking a slight uptick from 201% at the end of September 2022.
Furthermore, Tugure’s investment risk is deemed limited by Fitch, as evidenced by the company’s cautious engagement with risky assets. The insurer’s portfolio garners liquidity through cash, cash equivalents, and fixed-income securities, which amounted to about 76% of their investment at the year-end of 2022.
The firm’s invested assets largely go to government and corporate-issued fixed-income securities, with ratings of ‘AA’ for private bonds and ‘A’ for state-owned entity bonds on the national scale. Stocks and mutual funds comprise the remainder of the portfolio.
