Post On : March 10, 2020
Fitch Ratings Indonesia has upgraded PT Reasuransi MAIPARK Indonesia's National Insurer Financial Strength (IFS) Rating to 'A(idn)' from '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 or monetary union, across all industries and obligation types.
Key Rating Drivers
Fitch has upgraded MAIPARK's rating due to improved business profile with prudent risk management including a robust retrocession programme. The rating also takes into account MAIPARK's satisfactory capitalisation, consistently sound operating performance and conservative investment portfolio.
MAIPARK's business profile is limited by its niche market in reinsurance for catastrophe risk, which is distinct from that of other local reinsurers, coupled with a 'Least Favourable' operating scale as it has only a modest amount of assets and premiums. The business-risk profile is deemed by Fitch as 'Moderate', as the company engages in prudent risk profiling using well-established catastrophe models.
The company has been reducing its premium concentration within the western part of Java to 40% from 55% through its new compulsory cession arrangement. The compulsory cession started in January 2020 and has changed from 25% with maximum limit IDR60 billion a risk to 10% with maximum limit IDR100 billion a risk within the western part of Java, and 25% with maximum limit IDR100 billion a risk outside the western part of Java. MAIPARK has been profitable since inception in 2004, including during several major catastrophic events.
We expect MAIPARK to consistently manage its top-line growth and maintain a prudent underwriting approach to support its business and operating performance. Gross written premiums increased by a moderate 9% in 2019. Nonetheless, the company recorded higher profitability, with return on equity of 12% at end-2019 (three years average: 13%), despite higher payments following three significant claims in 2018. This was thanks to its strong investment results and retrocession programme. MAIPARK's combined ratio remained below 100% during the previous five years.
The local solvency ratio has also been consistently strong at above 500% over the last five years, well above the minimum regulatory requirement of 120%. Risk-based capitalisation was 679% at end-2019. The high level of capitalisation supports the company's growth and provides an adequate buffer against shocks that stem from its specialisation in catastrophe risk reinsurance.
MAIPARK's investment mix is highly liquid and conservative, with more than half of its invested assets held in cash and deposits at end-2019. Its exposure to risky assets is kept at a manageable level relative to equity.
The company has enhanced its risk management capabilities over the previous few years. It has constructed an internal catastrophe modelling tool, launched an enterprise risk-management system and developed an internal audit unit to monitor risks more closely. The company has also increased its protection limit from IDR3.0 trillion in 2019 to IDR4.2 trillion in 2020 that could cover losses for return period above minimum regulatory requirement based on an external catastrophe model.
Rating Sensitivities
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