AM Best Revises Outlooks to Stable for PT Asuransi Tugu Pratama Indonesia Tbk

SINGAPORE--(BUSINESS WIRE)--AM Best has revised the outlooks to stable from negative and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of PT Asuransi Tugu Pratama Indonesia Tbk (TUGU) (Indonesia).

These Credit Ratings (ratings) reflect TUGU’s balance sheet strength, which AM Best categorises as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management (ERM).

The revision of the outlooks to stable reflects the company’s improvements in ERM on a group-wide basis in terms of risk governance, underwriting, reserving and investment activities in recent years. The effective measures are evidenced by TUGU’s improved profitability, better strategic alignment of various business components and more prudent approach to business expansion. AM Best expects the company to continue to strengthen its risk management capabilities, as TUGU’s operations and risks grow in size and complexity.

TUGU’s balance sheet strength assessment is underpinned by its risk-adjusted capitalisation, which remains at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). Low underwriting leverage and good internal capital generation over recent years have strengthened the company’s capital adequacy and continued to support TUGU’s business expansion. However, a partially offsetting factor is the company’s high usage and reliance on reinsurance to enable the underwriting of large commercial risks, as well as to manage accumulation risks and catastrophe exposure. In addition, AM Best considers the company’s investment risk to be moderate given its notable exposure to higher-risk classes of equities and real estate.

AM Best views TUGU’s operating performance as strong. The company reported five-year average combined and operating ratios of 85% and 69%, respectively (2015-2019). A significant contributor to the company’s underwriting profits has been its corporate business from PT Pertamina (Persero), TUGU’s immediate parent and Indonesia’s national integrated energy company. However, the company expects full-year results in 2020 to decrease moderately, driven by domestic flood losses and COVID-19’s negative impact on premium and investment income. While the company plans to maintain strong financial results over the medium term, profitability could face pressure from high operating expenses related to retail business growth, lower investment yields and tightened reinsurance commission income.

AM Best assesses the company’s business profile as neutral. In 2019, TUGU’s consolidated gross premium written was IDR 6.43 trillion (USD 450 million), ranking it among the largest non-life insurance companies in Indonesia. TUGU’s premium growth has outpaced market averages for several segments over recent years. Despite the company’s limited presence in the retail sector, TUGU remains a dominant player in commercial aviation, marine, energy and property lines of business. Domestic reinsurance business also has become a significant component of gross and net premium written over recent years, following the company’s consolidation of PT Tugu Reasuransi Indonesia in 2017.

Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.

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