A.M. Best Assigns Ratings to PT. Asuransi Samsung Tugu [Manufacturing Close – Up]

Proquest LLC

A.M. Best Asia-Pacific Limited has assigned a financial strength rating of A- (Excellent) and issuer credit rating of "a-" to PT. Asuransi Samsung Tugu (AST) (Indonesia).

The outlook assigned to both ratings is stable.

The ratings reflect AST's risk-adjusted capitalization, profitable underwriting performance, sound reinsurance arrangement and strong enterprise risk management (ERM) practice. The ratings also consider the support provided by the shareholders of Samsung Fire & Marine Insurance Co., Limited (SFM) (South Korea) and PT. Tugu Pratama Indonesia (TPI) (Indonesia). AST's risk-adjusted capitalization is expected to improve to a level that supports its ratings, although its capitalization weakened in the past year due to increases in both its credit and investment risks. However, the capitalization is expected to gradually increase, owing to its consistent profitable operation and conservative investment management. AST reported strong underwriting profitability in the past five years with a combined ratio average of 42 percent, owing to its conservative underwriting guidance and claims management. In addition, AST started a robust reinsurance program by further increasing its catastrophe coverage in 2013 in order to enhance the stability of its underwriting performance. AST operates a solid ERM system and its standards are in line with SFM, which is more conservative than the regulatory base.

Offsetting rating factors are an increase in AST's cost structure and its historically volatile investment results. AST experienced rapid rises in expenses because of significant increases in personnel and rent costs in the past five years. As AST is still on a course of business expansion, it is inevitable that it will have increases in expenses in the next two to three years. AST reported volatile investment returns in the past five years primarily due to the significant changes in foreign currency rates especially related to transactions in the U.S. dollar, while its books of accounts are maintained in Indonesian rupiah. In 2012, the company set a more conservative investment strategy to maintain USD-denominated assets to range between 80 percent and 120 percent of liabilities for better asset and liability management, in addition to a minimum required amount on USD-denominated assets.

Positive rating pressures may arise if there are improvements in AST's business profile whilst maintaining a strong level of risk- adjusted capitalization or there is improvement in the country risk profile of Indonesia. Downward rating pressures may be triggered by a worsening of AST's risk-adjusted capitalization or deterioration in its business profile.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides an explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: "Understanding Universal BCAR"; "Rating Members of Insurance Groups"; "Evaluating Country Risk"; "Catastrophe Analysis in A.M. Best Ratings"; and "Risk Management and the Rating Process for Insurance Companies." Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.