PT TUGU PRATAMA INDONESIA Jakarta Selatan 12940, Indonesia A- Operating Company Non-Life Ultimate Parent: PT PERTAMINA (PERSERO) PT TUGU PRATAMA INDONESIA Wisma Tugu I, Jl. HR Rasuna Said Kav. C 8-9, Jakarta Selatan 12940, Indonesia Web: www.tugu.com Tel.: 62-21-529-61-777 Fax: 62-21-529-61-555 AMB#: 086732 AIIN#: AA-5360002 Ultimate Parent#: 055828 BEST S CREDIT RATING Best s Financial Strength Rating: A- Outlook: Stable Best s Financial Size Category: VIII RATING RATIONALE Rating Rationale: The ratings reflect PT Tugu Pratama Indonesia s (TPI) good business profile in the profitable commercial segment of Indonesia s non-life insurance industry, its strong operating performance and favorable risk-adjusted capitalization. TPI is 65% owned by PT PERTAMINA (PERSERO) (Pertamina), Indonesia s largest integrated energy company. TPI was established in 1981 to provide insurance for Indonesia s oil and gas sector, especially for assets owned by Pertamina. While Pertamina s oil and gas portfolio continues to represent a major source of profitable business, TPI has over the years established a strong presence in other commercial segments of Indonesia s non-life market such as aviation, engineering and property. The company has a track record of strong profit margins, with pretax results that are significantly boosted by TPI s large investment portfolio. Printed September 29, 2016 www.ambest.com Page 1 of 6
The company s balance sheet strength is also favorable and supportive of its ratings. Net underwriting risk is reduced substantially through reinsurance. TPI s gross underwriting leverage and reinsurance asset leverage measures are moderate compared with its commercial lines peers, with gross premiums to capital at 1.1 times and reinsurance assets to capital at 1.3 times at year-end 2015. Offsetting rating factors include TPI s exposure to reinsurance counterparties that are of lower credit quality by international standards and of much smaller capital size than TPI. Moreover, these counterparties have the same geographic concentration as TPI. Other offsetting rating factors are TPI s weak profile in the retail segment and its reliance on Pertamina as the primary source of underwriting profits. Positive rating actions are unlikely at present. Negative rating actions could result from a material decline in TPI s risk-adjusted capitalization due to a substantial increase in TPI s reinsurance asset leverage or deterioration in TPI s reinsurance asset quality. FIVE YEAR RATING HISTORY Best s Date FSR 09/23/16 A- BUSINESS PROFILE PT Tugu Pratama Indonesia (TPI) was established in 1981 and benefits from its affiliation with PT PERTAMINA (PERSERO) (Pertamina), which owns 65% of TPI. Pertamina is a state-owned integrated energy company in Indonesia with USD 46 billion in total assets and USD 19 billion in capital as of 31 December 2015. In 2013, it was the largest non-financial state-owned company in Indonesia. Priority access to Pertamina s business, which is characterized by good claims experience, provides TPI with a steady stream of profitable business. To fulfill its role to Pertamina, TPI is also increasingly expected to provide insurance cover for its parent group s overseas assets, as Pertamina is acquiring assets outside Indonesia. Pertamina s business accounted for about 35% of TPI s gross premiums in 2015. This is not expected to change much going forward. Much of TPI s Pertamina business is accessed directly, which helps to reduce acquisition costs. TPI is involved in Pertamina s risk management through TPI s subsidiary, PT Synergy Risk Management Consultants. In addition, TPI also underwrites unrelated third-party business in the Indonesian non-life market, where TPI is also recognized as a leading participant in the commercial segment of Indonesia s non-life sector as well. Affiliations: TPI is also affiliated with PT Tugu Reasuransi Indonesia (Tugu Re), which is on TPI s reinsurance panel, and PT Asuransi Samsung Tugu (AST), which is a passive affiliate investment for TPI. These are held through an intermediate holding company, PT Tugu Pratama Interindo, (37.67% ownership in Tugu Re and a 30% ownership stake in AST). In addition, TPI owns an insurance subsidiary in Hong Kong named Tugu Insurance Company. Scope of Operations: In terms of business lines, gross premiums are mainly generated through the underwriting of property risks (43%), aviation risks (16%), marine cargo and hull (15%), energy (10%) and engineering (5%). These reflect TPI s leadership in the commercial area and Pertamina s wide-ranging operations as Indonesia s only integrated energy company, whose portfolio does not only include oil, but also gas and geothermal, as well as downstream and upstream operations. This helps to counterbalance the impact of changes in the business cycle in any one of Pertamina s business segments. In terms of sources of business, in 2015 Pertamina and SKK Migas provided 35% and 10% of gross premiums, respectively, with other non-affiliated sources of business generating around 55% of TPI s gross premiums in Indonesia. Most of the net underwriting results are generated from Pertamina s business. TPI s distribution is geared towards reaching commercial customers, reflecting its affiliation with Pertamina and focus on corporate business; the directly sourced business accounts for 71% of gross premiums, and 23% is generated from brokers. Inward reinsurance represents 4% of business. Business Trends: On balance management expects growth to be moderate going forward. The negative impact of reduced upstream energy investment on gross premium production, is counter-balanced by a continued need to expand and upgrade mid-and downstream assets in Indonesia. At the same time Pertamina is taking over expiring concessions currently managed by foreign operators. Furthermore, with its strengths in the commercial insurance segment, TPI is expected to benefit from insurance demand related to government infrastructure spending. With regard to insuring Pertamina s overseas assets, management is well aware that underwriting these would require developing proper understanding of their risk profiles, which may well differ from Pertamina assets located in Indonesia. In addition, TPI is seeking to strengthen its market profile outside the Pertamina group if profitable opportunities arise, including corporate-retail opportunities, for example health and motor insurance opportunities that could arise from existing corporate accounts where TPI already offers aviation or property insurance. Market Share/Market Presence: TPI ranks fourth in terms of gross premiums in the overall non-life market in Indonesia with a 5% market share. It is recognized as a leader in commercial lines. Within selected lines (i.e., aviation, marine, engineering, energy and fire), where it benefits from its state-owned affiliation and comparatively large capital size, the company ranks anywhere from first to third in terms of gross premium market share. OPERATING PERFORMANCE Operating Results: Operating results have been strong over the past five years. TPI s operating ratio averaged 59% in the five years to 31 December 2015 and is stronger than that of its peers in the Indonesian non-life market. Printed September 29, 2016 www.ambest.com Page 2 of 6
Pretax margins have been boosted significantly by investment results, which benefit from TPI s strong capitalization and large investment portfolio (4.9 times net earned premiums). Operating results are also fairly balanced with positive contributions from underwriting and investments over the past five years. Underwriting Results: Underwriting results are strong in absolute terms and slightly above average compared to the Indonesian non-life market over the past five years. Volatility in net underwriting results is wider than market average, reflecting TPI s focus on large commercial risks. Underwriting profit margins have been strong at a net and gross level, which should help the company to manage through a hardening reinsurance market environment. Underwriting results rely heavily on Pertamina. While accounting for about 37% of gross premiums in the five years to 2015, Pertamina s business, which benefit from net commission income, accounted for the great majority of TPI s underwriting results. Other sources of business are around breakeven after all expenses including acquisition, claims and management expenses. Investment Results: TPI s investment portfolio was over four times net earned premiums in 2015 and has played a major role in boosting TPI s overall profit margins. The company s net investment income ratio ranged between 17.5% and 33.9% in the five years to 2015. The company is exposed to currency fluctuations. While the company has adopted the US dollar as a reporting currency, 56% of its investments are denominated in Indonesian rupiah and 42% are denominated in US dollars (with the remainder mostly in Hong Kong dollars, Chinese renminbi and British pounds). BALANCE SHEET STRENGTH Capitalization: TPI s capital position stood at USD 232 million in December 2015 and at USD 250 million in June 2016. With its low gross to net premium ratio, the primary sources of TPI s risk-adjusted capital requirements, as measured by Best s Capital Adequacy Ratio (BCAR), are reinsurance asset risk and gross catastrophe exposure. Reinsurance assets amounted to 131% of capital, which is moderate compared to local and regional peers that have a commercial focus. The ratio of TPI s 1-in-250-year modeled gross probable maximum earthquake loss (gross PML) to capital was below 1 time TPI s capital position in 2015 and is not expected to rise significantly over the period to 2018. As a result of these two fairly moderate measures, TPI s BCAR remains at strong levels in natural catastrophe tests and when applying higher capital risk factors on reinsurance assets that only have local ratings. Reinsurance assets represent the largest asset class on TPI s balance sheet, accounting for 40% of total assets in 2015. While TPI is required by regulations to increase cessions to domestic counterparties, management information shows that as at December 2015 around 79% of its total reinsurance assets are from counterparties that have internationally recognized ratings of B++ or above. These include some local counterparties that have international ratings. TPI heavily utilizes an affiliated reinsurer, Tugu Re, which could help to reduce potential dispute risk on reinsurance assets. Underwriting Leverage: TPI is well capitalized relative to its underwriting risks, whether at a gross or net level. Gross premium leverage stood at 1.1 times and net premium leverage was 0.22 times at 31 December 2015, while gross and net insurance reserve leverage stood at 1.6 times and 0.3 times, respectively. These measures are moderate to low in absolute terms as well as when compared to its commercial lines focused peers in the region. Its moderate gross leverage measures explain TPI s moderate ceded leverage and gross PML to capital ratios. Gross leverage measures are not expected to diverge much from their historical levels as the company s priority will remain supporting Pertamina s risks. Financial Leverage: As of December 2015, TPI s consolidated financial statements carried borrowings and consumer finance lease payables of USD 9.2 million, equivalent to 4% of capital. These were mostly for its subsidiary s property and motor vehicle rental business. Interest expense was reported at USD 0.93 million in 2015, implying an interest rate of approximately 10%. Financial leverage is not expected to increase going forward under the company s business plan. Liquidity: Cash and bonds to gross insurance liabilities and net insurance liabilities were 0.55 times and 2.83 times, respectively. Liquid assets to gross and net insurance liabilities amounted to 0.65 times and 3.35 times, respectively. Investments: Investments and cash totaled 39% of TPI s total assets. As at December 2015, most of its investments were allocated to cash and bonds (70%). About 13% of investments were allocated to non-listed equity investments in associates (mostly Tugu Re and AST). Higher allocations to these associates could be a drag on TPI s BCAR as investments in non-listed associates are subject to higher capital risk factors. TPI s investment policy and strategy are aligned to regulations, which require diversification on a per issuer (including deposit-taking banks and excluding the Government of the Republic of Indonesia) and fund manager level as well as minimum investments in cash. Summarized Accounts as of December 31, 2014 Data reflected within all tables of this report has been compiled from the financial statements of this company (Source: Company Financial Statement). An independent audit of the company s affairs through December 31, 2014, was conducted by Kantor Akuntan Publik Tanudiredja, Wibisana & Rekan. Printed September 29, 2016 www.ambest.com Page 3 of 6
US $ per Local Currency Unit.0000806 = 1 Indonesian Rupiah (IDR) STATEMENT OF INCOME IDR(000) USD(000) Technical account: Gross premiums written 2,730,612,525 220,087 Reinsurance ceded 2,203,988,321 177,641 Net premiums written 526,624,204 42,446 Increase/(decrease) in gross unearned premiums 39,395,071 3,175 Net premiums earned 487,229,133 39,271 Total underwriting income 487,229,133 39,271 Net claims paid 109,013,512 8,786 Net increase/(decrease) in claims provision 80,793,166 6,512 Net claims incurred 189,806,678 15,298 Management expenses 232,217,244 18,717 Acquisition expenses -127,577,639-10,283 Net operating expenses 104,639,605 8,434 Total underwriting expenses 294,446,283 23,732 Balance on technical account 192,782,850 15,538 Combined technical account: Gross premiums written 2,730,612,525 220,087 Reinsurance ceded 2,203,988,321 177,641 Net premiums written 526,624,204 42,446 Increase/(decrease) in gross unearned premiums 39,395,071 3,175 Net premiums earned 487,229,133 39,271 Total revenue 487,229,133 39,271 Net claims paid 109,013,512 8,786 Net increase/(decrease) in claims provision 80,793,166 6,512 Net claims incurred 189,806,678 15,298 Management expenses 232,217,244 18,717 Acquisition expenses -127,577,639-10,283 Net operating expenses 104,639,605 8,434 Total underwriting expenses 294,446,283 23,732 Balance on combined technical account 192,782,850 15,538 Non-technical account: Net investment income 159,370,079 12,845 Other income/(expense) 92,938,587 7,491 Profit/(loss) before tax 445,091,516 35,874 Taxation 83,246,835 6,710 Profit/(loss) after tax 361,844,681 29,165 ASSETS IDR(000) % of total USD(000) Cash & deposits with credit institutions 958,201,921 12.8 77,231 Bonds & other fixed interest securities 953,128,884 12.7 76,822 Shares & other variable interest instruments 184,839,304 2.5 14,898 Liquid assets 2,096,170,109 28.0 168,951 Inter-company investments 1,046,476,995 14.0 84,346 Total investments 3,142,647,104 41.9 253,297 Reinsurers share of technical reserves - other 3,009,475,436 40.2 242,564 Total reinsurers share of technical reserves 3,009,475,436 40.2 242,564 Insurance/reinsurance debtors 1,199,208,220 16.0 96,656 Other debtors 90,507,038 1.2 7,295 Total debtors 1,289,715,258 17.2 103,951 Fixed assets 7,378,462 0.1 595 Other assets 45,703,175 0.6 3,684 Total assets 7,494,919,435 100.0 604,091 LIABILITIES IDR(000) % of total USD(000) Capital 160,000,000 2.1 12,896 Paid-up capital 160,000,000 2.1 12,896 Non-distributable reserves -24,749,796-0.3-1,995 Other reserves 302,361,952 4.0 24,370 Retained earnings 2,231,241,251 29.8 179,838 Capital & surplus 2,668,853,407 35.6 215,110 Gross provision for unearned premiums 1,015,296,634 13.5 81,833 Gross provision for outstanding claims 2,420,865,993 32.3 195,122 Total gross technical reserves 3,436,162,627 45.8 276,955 Insurance/reinsurance creditors 1,045,906,493 14.0 84,300 Other creditors 96,962,685 1.3 7,815 Total creditors 1,142,869,178 15.2 92,115 Accruals & deferred income 78,049,920 1.0 6,291 Other liabilities 168,984,303 2.3 13,620 Total liabilities & surplus 7,494,919,435 100.0 604,091 Retained profit/(loss) for the financial year 361,844,681 29,165 Retained profit/(loss) carried forward 361,844,681 29,165 Printed September 29, 2016 www.ambest.com Page 4 of 6
ANALYSIS OF GROSS PREMIUMS WRITTEN IDR IDR IDR (000) (000) (000) Aviation 418,104,037 475,785,918 312,842,393 Engineering 131,279,062 86,116,203 95,401,710 Fire 1,194,768,8 12 706,242,940 500,536,631 Marine 463,499,898 364,999,744 275,929,543 Other classes 522,960,716 506,295,222 353,006,035 Total non-life 2,730,612,5 2,139,440,0 1,537,716,3 25 27 12 REINSURANCE TPI s reinsurance consists of facultative and treaty (surplus, quota share, marine and aviation excess of loss and non-marine excess of loss) reinsurance. Around three-quarters of ceded premiums go toward facultative reinsurance. Treaty gross account property risks are protected by non-marine treaty surplus reinsurance. Under this arrangement, reinsurance protection for Pertamina and/or oil and gas and/or energy business totaled USD 105 million (i.e., three sections at USD 50 million, USD 25 million USD 30 million). Reinsurance protection for non-pertamina and/or non-oil and gas and/or non-energy business totaled USD 40 million (i.e., two sections at USD 25 million and USD 15 million). Treaty property retentions after these proportional arrangements are protected by excess of loss reinsurance, which absorbs non-marine losses (after proportional reinsurance) between USD 500,000 and USD 60 million. Treaty marine and aviation (hull, cargo, P&I and aviation) losses (after proportional reinsurance) are covered by excess of loss reinsurance, which absorbs losses between USD 1 million to USD 15.5 million. About three-quarters of TPI s treaty reinsurance is provided by counterparties with international ratings. In addition to treaty reinsurance, TPI makes extensive use of facultative insurance, which accounts for the great majority of TPI s overall ceded premiums. Seventy percent of TPI s facultative reinsurance is provided by counterparties with international ratings. The company s retention under its largest facultative (re)insurance arrangement is reduced by its treaty and excess of loss reinsurance to USD 500,000. BALANCE SHEET ITEMS IDR IDR IDR (000) (000) (000) 2,096,170,10 1,728,123,44 1,478,827,43 Liquid assets 9 4 5 3,142,647,10 2,696,759,13 2,287,712,95 Total investments 4 4 0 7,494,919,43 6,393,611,21 5,227,365,52 Total assets 5 3 1 3,436,162,62 2,946,275,51 2,358,631,43 Total gross technical reserves 7 8 5 Net technical reserves 426,687,191 306,498,954 214,391,330 4,826,066,02 4,150,320,32 3,270,980,06 Total liabilities 8 5 2 2,668,853,40 2,243,290,88 1,956,385,45 Capital & surplus 7 8 9 INCOME STATEMENT ITEMS IDR IDR IDR (000) (000) (000) 2,730,612,52 2,139,440,02 1,537,716,31 Gross premiums written 5 7 2 Net premiums written 526,624,204 389,343,421 244,299,775 Balance on technical account(s) 192,782,850 72,390,274 40,262,563 Profit/(loss) before tax 445,091,516 433,883,950 228,139,421 Profit/(loss) after tax 361,844,681 363,118,388 196,356,488 LIQUIDITY RATIOS (%) Total debtors to total assets 17.2 15.9 14.7 Liquid assets to net technical reserves 491.3 563.8 689.8 Liquid assets to total liabilities 43.4 41.6 45.2 Total investments to total liabilities 65.1 65.0 69.9 LEVERAGE RATIOS (%) Net premiums written to capital & surplus 19.7 17.4 12.5 Net technical reserves to capital & surplus 16.0 13.7 11.0 Gross premiums written to capital & surplus 102.3 95.4 78.6 Gross technical reserves to capital & surplus 128.8 131.3 120.6 Total debtors to capital & surplus 48.3 45.3 39.3 Total liabilities to capital & surplus 180.8 185.0 167.2 PROFITABILITY RATIOS (%) Loss ratio 39.0 43.4 35.8 Operating expense ratio 19.9 26.8 44.3 Combined ratio 58.8 70.2 80.0 Net investment income ratio 32.7 72.0 64.6 Operating ratio 26.1-1.8 15.5 Return on net premiums written 68.7 93.3 80.4 Return on total assets 5.2 6.2 Return on capital & surplus 14.7 17.3 Printed September 29, 2016 www.ambest.com Page 5 of 6
Why is this Best s Rating Report important to you? The A.M. Best Company is the oldest, most experienced rating agency in the world and has been reporting on the financial condition of insurance companies since 1899. contract or any other financial obligation issued by an insurer, nor does it address the suitability of any particular policy or contract for a specific purpose or purchaser. A Best's Financial Strength Rating (FSR) is an independent opinion of an insurer's financial strength and ability to meet its ongoing insurance policy and contract obligations. An FSR is not assigned to specific insurance policies or contracts and does not address any other risk, including, but not limited to, an insurer's claims-payment policies or procedures; the ability of the insurer to dispute or deny claims payment on grounds of misrepresentation or fraud; or any specific liability contractually borne by the policy or contract holder. An FSR is not a recommendation to purchase, hold or terminate any insurance policy, The company information appearing in this pamphlet is an extract from the complete AMB Credit Report. You may obtain the complete report by contacting Customer Service at +1(908)439-2200 or customer_service@ambest.com. Please reference the company's identification number (AMB#) listed on this rating report. For the latest Best's Financial Strength Ratings along with their definitions and A.M. Best's Terms of Use, please visit www.ambest.com. Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. All rights reserved. No part of this report may be reproduced, distributed, or stored in a database or retrieval system, or transmitted in any form or by any means without the prior written permission of the A.M. Best Company. While the data in this report was obtained from sources believed to be reliable, its accuracy is not guaranteed. Printed September 26, 2016 www.ambest.com Page 6 of 6