Tugu Reasuransi Indonesia's (Tugure) combined ratio is expected to remain volatile due to the reinsurer's exposure to claim risk from the property and credit insurance businesses, said Fitch Ratings Indonesia (Fitch).
Tugure's combined ratio increased to 107% in 2023 (2022: 102%) due to higher technical reserves from property and credit insurance, but improved to 100% in 1H2024. The rising reserves increased the loss ratio to 72% in 2023 (2022: 65%). The three-year average combined ratio was 105% over 2021-2023.
Tugure booked a net loss of IDR36bn ($2.27m) in 2023, from a net profit of IDR101bn in 2022. Return on equity fell to -2% in 2023 (2022: 7%), with a three-year average of 2%. The reinsurer returned to a net profit of IDR106bn in 1H2024, with an annualised return on equity of 14%, due to lower technical reserves.
Ratings affirmed
Fitch has affirmed Tugure’s National Insurer Financial Strength (IFS) Rating at 'A+(idn)' with a ‘Stable’ outlook.
The rating action reflects the company's adequate regulatory capital position and 'Moderate' company profile, which offsets the volatile financial performance following high technical reserves. It also reflects a conservative investment portfolio and retrocession arrangements that support underwriting capacity.
'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.
Aside from operating performance, other major drivers of Tugure’s ratings include:
Regulatory capital above requirement: Tugure's capitalisation, measured by the regulatory risk-based capital (RBC) ratio, has been above 120% minimum regulatory requirement for the past five years. The ratio declined to 166% by end-June 2024 (2023: 181%; 2022: 249%), following higher technical reserves for the property and credit insurance businesses. The reinsurer's equity balance is above the equity requirement of IDR1tn that will take effect in 2026.
'Moderate' company profile: Fitch assessed Tugure's company profile as 'Moderate', based on a 'Moderate' business profile and 'Neutral' corporate governance compared with that of other domestic reinsurers. Its business profile reflects Tugure's substantive franchise, a risk profile that is on a par with the sector and diversified business lines. Tugure held a 11% market share based on gross premiums written (GPW) in the Indonesian reinsurance sector in 2023.
Most of Tugure's business is from the non-life segment, with property (43%) and credit (26%) being the main contributors. More than half of the business is facultative insurance. After GPW growth slowed to 4% in 2023, the reinsurer booked 26% growth in 1H2024, above the 20% increase in the wider reinsurance market. Fitch believes the above-average growth raises risks, particularly to Tugure's capitalisation and financial performance.
Liquid investment portfolio: Fitch viewed Tugure's investment portfolio as liquid, with cash, time deposits and fixed- income securities accounting for around 77% of invested assets at end-2023. Most of its fixed-income securities are government and corporate bonds that are rated at least 'AA' on the national scale. The remaining portfolio consists of mutual funds and stocks.
Retrocession mitigates CAT risk: Tugure mainly uses excess-of-loss treaties to reduce catastrophe exposure. Members of the retrocession panel are rated 'A-' or above on the international scale. The reinsurer collaborates periodically with external brokers to conservatively assess its catastrophe exposure through various modelling tools. The reinsurer retained 75% of the non-life premiums in 2023.