AM Best has affirmed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of PT Asuransi Tugu Pratama Indonesia Tbk (TUGU) (Indonesia). The outlook of these Credit Ratings (ratings) is negative. Additionally, AM Best has assigned the Indonesia National Scale Rating (NSR) of aaa.ID (Exceptional) to TUGU with a stable outlook.

The ratings reflect TUGU’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management. The ratings also factor in a neutral impact from TUGU’s ultimate majority parent, PT Pertamina (Persero) (Pertamina), a state-owned energy company in Indonesia.

TUGU’s balance sheet strength is underpinned by its risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which is expected to remain at the strongest level over the medium term. AM Best views TUGU’s investment portfolio to be of moderate risk and generally diversified, with the majority of investments being allocated to bonds and time deposits and the remainder in investment properties and equity investments. An offsetting factor is TUGU’s dependence on reinsurance to support the underwriting of large commercial risks, including aviation and energy businesses, and to manage its exposure to severe catastrophe events. The majority of reinsurance assets are of good credit quality, although TUGU maintains some exposure to reinsurance counterparties that are not rated on an international FSR scale.

AM Best views TUGU’s operating performance as strong, supported by its five-year average combined ratio of 96.1% (2018-2022). Profitable business from its parent group, Pertamina, remains the key contributor to TUGU’s strong operating performance. In addition, investment income remains as a positive contributor to TUGU’s net profit. However, underwriting performance has deteriorated in recent financial years, accompanied by weak underwriting margins at TUGU’s reinsurance subsidiary, PT Tugu Reasuransi Indonesia (Tugu Re). Pre-tax profits surged 333% in the first nine months of 2023 as compared with the same period in 2022, largely driven by a one-off gain from a long-standing litigation case.

AM Best considers TUGU’s business profile to be neutral. TUGU is a major insurance group in Indonesia, ranking fifth by market share in 2022 in the domestic non-life insurance market, and additionally writes reinsurance through Tugu Re. TUGU has a strong market position in commercial and industrial risks, including the energy, aviation and marine hull business segments, and continues to benefit from favourable business access to affiliated business from the Pertamina group. Business diversification is expected to be supported by strategic expansion to the reinsurance sector and retail business over time, although this also may lead to greater underwriting volatility over the near to medium term.

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

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

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